US inflation just hit 8.5% – the highest since the 70s-80s. Blows out anything from the war on terror
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 11 in our series for 2022 and today’s date is Friday April 15.
First, I’ll be talking to Tom Treanor, the chief marketing officer for Treasure Data, the California-based enterprise customer data platform (CDP) that powers the entire business to shape customer-centricity in the age of the digital customer.
And I’ll be talking to KPMG economist Sarah Hunter about the state of Australia’s economy, inflation and impending interest rate rises.
But now, let’s talk to Tom Treanor.
Spurred by Russia’s war on Ukraine and continuing economic fallout from the pandemic, U.S. inflation rose in March by the most since late 1981, reinforcing pressure on the Federal Reserve to raise interest rates more aggressively. The main sources of pain during the month were gasoline and food. Though some economic experts contend the current inflation reading of 8.5% is likely its peak, the path down the mountain can’t come soon enough for many consumers. Gasoline costs drove half of the monthly increase, while food was also a sizable contributor, as Americans paid more for vegetables, meats and dairy products. While the Fed has opened the door for a half-percentage point increase in interest rates, inflation isn’t likely to recede to the central bank’s 2% goal anytime soon — especially given the war, COVID-19 lockdowns in China and greater demand for services like travel. At the same time, risks that inflation will tip the economy into recession are building. A growing chorus of economists predict that activity will contract either because consumer spending declines in response to higher prices, or the Fed will over-correct in its effort to catch up. However, the majority still expects the economy to grow.
Elon Musk has confirmed that he will not join Twitter’s board although he said he might “engage in discussions” with directors “without limitation”, opening the door to future involvement in the company’s strategy. The Tesla chief executive, who became the social media company’s largest shareholder after acquiring a 9.2% stake, said in an amended regulatory filing on Monday that he might discuss the business, mergers, capital structure and governance with its board or management team in the future. The filing also stipulated that Musk could express his views on Twitter’s products and services to the board, management or the public “through social media or other channels”.
The Reserve Bank of Australia’s cash rate is tipped to hit as high as 1.5% by the middle of next year as the nation’s central bank moves to put a cap on soaring inflation. AMP Capital economist Diana Mousina has outlined the investment manager’s new forecast for Australia’s interest rates, predicting the official cash rate target to hit 1% by the end of 2022 before lifting to 1.5% in mid-2023. Australia’s interest rates are hovering at the record low level of 0.1%.
House rents jumped by as much as 21% in some capital cities during the past 12 months, with sharp rises expected in the months ahead as the number of available rental homes falls to critical levels, data from SQM Research shows. Across the combined capitals, rents for houses climbed by nearly 15% during the year, while unit rents rose by 11%. . The growing number of tenants living on their own, combined with the return of international students had fuelled strong rental demand at a time when supply is diminishing rapidly,
Consumer confidence gained 1.3% last week in response to falling petrol prices, according to an ANZ-Roy Morgan survey. Weekly inflation expectations remained steady at 5.8% despite a significant drop in petrol prices. Its four-week moving average was also unchanged at 6%.
Petrol plummeted 19.1¢ a litre on average last week as the 50% cut to the fuel excise flowed through to pump prices, slashing about $50 a month from the average family’s fuel bill.
A survey from National Australia Bank (NAB) showed its index of business conditions doubled to +18 in March, while confidence added 3 points to +16. The survey’s measure of sales jumped 13 points to +24, while profitability rose 8 points to +13. The employment index added 4 points to +12, suggesting the jobless rate will soon drop under 4% for the first time since the early 1970s.
Clive Palmer’s United Australia Party has spent nearly $3.5 million on advertising in April as it continues to outpace its political rivals. Figures obtained from Nielsen Ad Intel – which tracks ad spending across metro television, print, radio and digital – show the party has spent $3.49 million this month. The Labor Party has spent $472,247, the Liberal Party has paid just $103,265 and the Greens bought $42,991 in ads. Television advertising urging viewers to back the UAP have been running in most capital cities for months, supported by ads across national and metro newspapers including The Australian, The Age and The Sydney Morning Herald. The party has also been prolific on YouTube and other websites. The Nielsen Ad Intel figures do not capture advertising on outdoor billboards, with the UAP’s spend on that content not captured in the $3.49 million figure.
Australians are googling inflation. On March 30, the day after the budget, stories mentioning “cost of living” spent a whopping 693 hours in one of the top 10 slots of major Australian news websites, up from five hours on March 5. Journalists are writing about it, and voters are clicking on it. In March, Google searches for the word “inflation” had their best month since May 2008, when Australia was in the midst of its last major inflation outbreak. RedBridge pollster Kosmos Samaras said the recent surge in petrol prices was “the straw that broke the camel’s back” for many voters. But it isn’t just petrol that has become more expensive. Since Prime Minister Scott Morrison came to office in August 2018, wages have not kept pace with inflation. Workers’ pay packets have increased 6.6%, while the price of what households buy has climbed 7%, meaning purchasing power has gone backwards. The cost of childcare, a topic front of mind for many voters, has jumped 19% since Morrison took office 3 ½ years ago. Supermarket staples have also become more expensive. Beef prices have climbed 29% while the prices of lamb, vegetables, cereal, juice, pork, and cheese have also increased faster than wages over this period.
With a six-week election campaign locked in, key economic indicators between now and polling day could be either a helping hand or a stinging blow to each major party’s electoral chances. Wage results due three days before the May 21 poll could gift Labor leader Anthony Albanese a boost, but the labour force report the following day could equally deliver Prime Minister Scott Morrison a 48-year milestone. Mr Albanese has used falling real wages, which occur when CPI inflation rises faster than wages, to drive home his pitch that the economy is not working for most Australians. In the year ended last June 30, CPI inflation rose 3.8% compared with wage growth of 1.8%. This financial year, CPI inflation is expected to be 4.25%, with wages lagging at 2.75% The March quarter inflation report will be released on April 27, and it is expected to show annual CPI as high as 4% to 5%, highlighting the mounting, cost-of-living pressure on households. Wages data for the same period will be released on May 18; economists expect it to show a pick-up in wages, but even if growth nudges to 2.5%, Labor’s message will be clear.a 2.75% pay rise would add $4400 to pre-tax pay, but assuming they spend what they earn, inflation of 4.25% would add $6800 to cost of living, leaving them $2400 worse off. The rising cost of living, including record fuel prices in March, was a key reason for the $8.6 billion cost-of-living cash splash in the federal budget. But while Labor will focus on wages and inflation, Mr Morrison will hope two sets of employment data due between now and election day – April 14 and May 19 – deliver him the lowest jobless rate since 1974. Unemployment fell to 4% in February from the previous month’s 4.2%, 5.9% a year earlier, and 7.4% at the height of the COVID-19 crisis. The Reserve Bank of Australia board meeting on May 3 will also be a date to watch. While most economists expect the central bank to hold the record low 0.1% cash rate until June, they’re not ruling out a May increase.
An overwhelming majority of leading Australian economists say climate change and environmental policy are the most important issues for the upcoming federal election. As party leaders scramble to set the tone for the next six-weeks of election campaigning, the economists polled have pointed to several issues often neglected by major political parties, that they say should be the focus of election policy platforms. A group of around 50 Australian economists were surveyed by The Conversation and the Economic Society of Australia, with 74% of those polled saying climate change should be the most important election issue. The group ranked housing affordability, health care and tax reform as the three most important issues, after climate and the environment. While there has already been a significant focus from party leaders, and much of the media, on the issue of taxes, none of the 50-so economists surveyed said that the need to ‘lower taxes’ was the most important election issue.
Prime Minister Scott Morrison has warned voters of the economic risks posed by a Labor government but economists at UBS are more sanguine, saying they see no material change to the economic or sharemarket outlook regardless of the winner. But in the same breath the investment bank has issued a stark warning on the threat of rising interest rates, predicting a housing market crash and a recession if the Reserve Bank moves too aggressively. With a Federal Election now locked in for May 21, both Labor and the Coalition will spend the coming weeks courting voters. Mr Morrison kicked this off on Sunday as he announced the election date. UBS said one key economic difference from a potential Labor victory would be new policies aimed to increase the minimum wage or change the EBA wage system. Meanwhile, the outlook for the sharemarket was positive, they said, with Australian equities posting strong returns in the three months before and six months after over the 18 federal elections since 1974. The equities market in the past has been unfazed by a change in government, while the consumer discretionary sector has outperformed during these times, UBS said.
The 2022 federal election advertising war will be fought on television, but the rise of audiences watching free-to-air through broadcast video-on-demand (BVOD) apps like 7plus or 9Now will help political messages be more targeted at specific audiences than during the 2019 election. As the Prime Minister has officially called the federal election, legislation now kicks in allowing more political ads on commercial free-to-air television, with free-to-air TV, radio and outdoor billboards to be used to communicate the party’s big messaging, such as broad policy ads and easy to digest grabs like Albanese’s pledge to be a leader “who shows up, who takes responsibility and who works with people” and Scott Morrison’s “that’s why I love Australia”. TV will be the medium wherein they can establish the overarching core headline message that they want all people to believe. Social environments will be where they can become more specific and persuasive with their message – including to try to convert the undecided in a more nuanced way. Media agency Dentsu’s Melanie McDonald, who works with clients to plan and buy advertising space, expects to see an increase on digital and social platforms from the 2019 election “as migration to connected TV viewing has grown significantly in the past three years”. She expects digital to be the key advertising battlefield in the 2022 election. Chris Walton, managing director of independent media agency Nunn Media, said campaigns targeting particular demographics or potentially even certain seats will leverage BVOD and other digital media.
Buy now, pay later giant Afterpay has revealed significant losses in the first six months of the financial year, unaudited financial accounts released by US parent Block show. Afterpay’s deteriorating results have reignited debate about the profitability of its buy now, pay later business model amid a surge in write-offs and late fees that dragged its losses to $345 million. Fintech giant Block, formerly Square, acquired Afterpay for $39 billion last year. It released details of Afterpay’s earnings to December 31 in New York on Monday night Australian time, revealing that its costs had blown out by 65% and its bad debts were up 70%. Afterpay’s income jumped from $374.2m to $560.8m in the six months to December 31, but a surge in finance costs and operating expenses saw the net loss rise from $79.2m to $345.5m. The blowout saw losses after tax lift by 336% as expenses and marketing costs ballooned as it neared the conclusion of the $39bn acquisition by Block. Afterpay’s results showed its cost of sales swelled, hitting $181.6m, up from $110.34m the year prior.
Spotless has been fined $17,500 for refusing to pay redundancy to three long-serving staff following a landmark judgment against its group redundancy policy. The Federal Court issued the penalty on Friday after criticising Spotless for its treatment of its Perth International Airport staff, including an accountant with more than 30 years’ service, and for adopting an incorrect policy position without any apparent legal consideration that would have netted it “considerable” financial gain.
Investors targeting companies with greater gender diversity in senior management stand to make 4% higher returns, largely from the benefits of more diverse thought, a 10-year global study of 2500 businesses has found. The study by investment firm Realindex also found that more diverse senior management teams could generate cumulative return-on-equity over five years that was nearly 30% more than counterparts with less diversity. The authors of the study and quantitative portfolio managers also claimed investors were yet to price in this information. The firm tracked 2500 large cap companies across 30 countries between January 1, 2009, to December 31 last year, monitoring female proportional representation at board and senior management levels. The study also analysed the impact of disclosure, quotas and an unstructured approach to increasing gender diversity, and found quotas were the most effective at promoting women to board positions and in turn driving performance.
The highly anticipated public float of Foxtel has been delayed until later this year due to a range of domestic and international factors that have altered the media landscape in recent months. Despite widespread industry speculation that an announcement regarding the timing of the float would be made by the end of this month – with a view to a possible public listing of the company before the end of this financial year – the potential deal now won’t proceed until the second half of 2022. Rising worldwide inflation, forecasts of multiple interest rate rises this year, and the ongoing war in Ukraine have all played a part in stalling the IPO. There are also concerns that the streaming market – both in Australia and overseas – has become worryingly overcrowded in recent months, which could make investors skittish.
And that’s it for this week. And next week, I’ll be talking to Victoria Matterson, the founder of Australian sustainable fashion and beauty marketplace VictoryMax which has just launched their virtual fitting room in conjunction with technology company Reactive Reality. This free feature enables customers to create a virtual mannequin in their proportions in order to mix and match pieces to find an outfit they love.
And I’ll be talking to Indeed economist Callam Pickering about the latest unemployment figures.
In the meantime you can catch me on Facebook, Twitter Instagram and LinkedIn. And if you want leave a comment.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.