18th October 2024
Global Cash Rates & Inflation
●The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to August is 2.7%.
● The US cash rate (policy rate) is currently between 4.75%-5.0%pa and the annual inflation rate in the year to September is 2.4%.
● The Bank of England Bank Rate currently sits at 5.0%pa to fight an inflation rate of 1.7% in the year to August.
● The European Central Bank Cash Rate (deposit facility) is 3.25%pa, to fight an annual inflation rate of 1.8% in the year to September.
Inflation is (slowly) falling in Australia, but excessive government spending threatens to erode the Reserve Bank’s progress in returning it to target.
While Australia’s gross debt is relatively low at 38.1% of GDP, record-spending by State governments are recording some of the largest deficits in the developed world, and ratings agency S&P Global forecasts that gross state government debt is on track to surpass $800 billion by 2028, triple what it was in 2019.
Australia is by no means alone in this regard. Earlier this month, the U.S. confirmed a budget deficit of $US1.8 trillion for the 2024 fiscal year, and is now spending more on debt servicing than defence.
Only time will tell whether governments adopt greater fiscal discipline in the future, but failing to do so will likely keep inflation elevated for longer, which will also certainly impact the outlook for interest rates.
Aussie Employment Remains Strong
Data released from the ABS reveals that the Australian participation rate increased to 67.2%, reaffirming the positive uptrend of labour force engagement.
Unemployment remained steady at 4.1% while the employment-to-population ratio also remained steady at 64.4%. Overall, the figures demonstrate that the Australian labour force remains fairly robust.
ECB Slashes Rates Again
The European Central Bank (ECB) has once again cut key interest rates, reducing the deposit facility rate to 3.35% per annum.
This move reflects the ongoing challenges faced by the European economy, which has been grappling with persistent weakness across multiple sectors.
With inflation continuing to ease, the ECB’s primary focus has shifted from controlling price stability to stimulating growth and revitalising economic activity.
UK Inflation Drops Below 2% Target
The latest inflation figures from the UK show that the annual inflation rate has slowed to 1.7%, marking the lowest level since April 2021.
This drop in inflation signals a significant easing of price pressures and has sharpened bets that the Bank of England could potentially cut rates twice before the end of the year.
ABE Monthly Webinar – Register Now
This month, we’ll be discussing the latest economic trends and their potential impact on fixed-income markets, providing valuable insights into how these developments may shape investment strategies.
We’re also excited to welcome a special guest, Wayne Strandquist, Chief Advocate of the Australian Independent Retirees Association (AIR), who among other things, advocates for the financial well-being of retirees.
Naturally, Wayne is a strong supporter of fixed-income which can help retirees (and other Australians) maintain their standard of living without being overly exposed to market volatility. He is also uniquely placed to provide insights on the kinds of strategies being used by active retiree investors.
We look forward to seeing you there.
Week Ahead
- Bank of Canada interest rate decision
- IMF world economic outlook report
- German manufacturing data
*Data accurate as at 18.10.2024
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