News
Wealth Pi Fortnightly Economic Snapshot
Interest Rates
RBA
On 11 August, the RBA left the official cash rate unchanged at 4.35 per cent in a unanimous decision. The decision reflects a deliberate pause to assess how the economy is evolving, with monetary policy judged to be somewhat restrictive.
Headline inflation remains too high, though the impact of the Middle East conflict on inflation has been less than expected. Trimmed mean inflation also remains elevated and is little changed from the March quarter, with oil and most related commodity prices remaining higher than prior to the conflict. The Board remains focused on ensuring that high inflation does not become embedded and will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if upside risks materialise.
Australian Markets
The RBA held the cash rate at 4.35% on 11 August in a unanimous decision. The Board judged policy only “somewhat restrictive” and said it would continue to do what it considers necessary to bring inflation back to target, including hiking further if upside risks materialise. Underlying inflation (trimmed mean) showed no increase in June, softer than markets expected, though not enough to shift the Board’s framing. Consumer sentiment rose 4.1% in July from weak June levels but remains well below the late‑2025 peaks, weighed down by this year’s three rate hikes and federal budget policy changes. Given the Board’s signal of possible further tightening rather than a peak, restrictive conditions and mortgage serviceability pressure are likely to persist for some time.
Former NAB chief economist Alan Oster attributes the slowdown mainly to higher interest rates rather than the negative gearing and capital gains tax changes, though he says both are feeding into buyer and investor caution. He notes that uncertainty persists over whether the RBA could still hike again. He also flags a scenario where a weakening economy pushes unemployment from its current 4.4% to “a five in front”, which he says would be close to a recession and could drive a 10 to 15% correction in property values from their recent peak, at which point he expects the RBA would respond by cutting rates.
Global Markets
The IMF’s July 2026 World Economic Outlook update holds global growth at 3.0% for 2026 and 3.4% for 2027, broadly unchanged on a cumulative basis from April, as the drag from the Middle East war is largely offset by demand-side momentum from the global AI investment cycle, producing what the IMF describes as a V-shaped path: weaker growth this year relative to the pre-war forecast, followed by a rebound in 2027. The picture on prices is less encouraging, with global headline inflation revised up to 4.7% for 2026 as the disinflation trend that began in early 2024 has stalled, while core inflation is broadly unchanged. The IMF held its 2026 US growth forecast at 2.3% and trimmed the euro area’s, noting the region captures less of the AI-driven upside while remaining more exposed to energy headwinds from the conflict. J.P. Morgan’s mid-year outlook takes a similarly constructive view of the growth backdrop, citing improving labour markets and a broadening AI capex cycle as the basis for lifting its S&P 500 year-end target to 7,800, while flagging geopolitical fragmentation as a persistent structural risk. Goldman Sachs Asset Management’s July Market Pulse echoes this, staying constructive on global equities on the strength of AI-driven earnings while noting corporate credit fundamentals remain solid despite the macro headwinds.
Property
Australian housing market continued to weaken in July, with national home values down 0.7% over the month and 1.9% over the quarter, marking the broadest downturn since 2022. Sydney fell 1.4%, Melbourne 1.2%, while Brisbane and Adelaide recorded their second consecutive monthly falls of 0.6% and 0.2% respectively. Perth rose only 0.1% after its June growth was sharply revised lower by 120 basis points. Nationally, values are now 2.0% below their March 2026 peak. Regional markets also declined 0.2% in July, their first fall since January 2023.
The downturn is heavily skewed to higher‑value properties. Upper‑quartile values dropped 3.2% over the three months to July, while the lower tier gained 0.3%. Demand is squeezed by three rate hikes this year, affordability constraints, higher fuel costs from the Middle East conflict, and uncertainty over federal budget changes to negative gearing and capital gains tax. Consumer sentiment improved slightly in July but remains well below late‑2025 levels, and auction clearance rates have stayed below 50% since late May. Sellers are pulling back, with new listings slowing notably in recent weeks, though total listings remain above early‑year levels.
In the rental market, the national rent index rose 0.4% in July, with annual growth holding at 5.9% for the third consecutive month. The vacancy rate edged up to 1.7% from 1.6% but remains far below the ten‑year average of 2.4%, sustaining upward pressure on rents. Gross rental yields for the combined capitals reached 3.56%, the highest since August 2019. However, Cotality’s Head of Research noted that the negative gearing changes have reduced the investment appeal of existing properties, and modest yield gains will not be enough to encourage significant investor buying under the new policy framework.
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