What does rising inflation & unemployment rates mean for you?

This week: What does rising inflation & employment rates mean for you? 

In this video I talk about rising inflation rates plus unemployment rates and wages growth and talk about what this means for you, how it might impact you financially and what you can do now to protect your finances.

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Transcript

Hey and welcome to Mel's Money Musings.  

Now you might think that I was going to talk about the headlines that we saw this week around 'dine now, pay later' or maybe you might even think that I was gonna talk about how a reality TV, Bachelor contestant, Abby Chatfield, has been engaged to flog Afterpays latest app, which is the very definition of putting lipstick on a pig. That's Afterpay, please. Not Abby. I love Abby. I'm disappointed that she's been engaged to endorse Afterpay.  

But no, here today, we are gonna talk about inflation because I know already you going to ignore 'dine now, pay later'. I'm dealing with that on Insta. So we are gonna deal with the bigger issues here.  

So there's a lot of talk about inflation rates with particularly this week, strong inflation numbers coming out of the US. And you might think to yourself, what on earth has this got to do with me? 

But trust me when I say that it has a lot to do with you.  

Now to set the scene, the US has released their inflation numbers for October, and it's the fastest-growing inflation rate since the 1990s. Now, to put that in perspective (I can't speak today!) CPI for October rose by 0.9%, which doesn't seem like much. But when the median average is 0.6%, you can see that that's quite the jump. But more than that, the year on year average means that this is the fastest jump, the fastest climb, since the 1990s. And if you remember the 1990s, it was a time of high interest rates and rising inflation.  

So the problem for inflation rates is if it's an extended period of time, because if that's an extended period of time of rising rates, that's when Government and things like the Reserve Bank needs to jump in and do something about it. 

So what is our Government saying? What is the Reserve Bank saying?

Well, our Reserve Bank came out this week and has said that he's not looking to inflation at the moment necessarily. He's not concerned about inflation, which you know, maybe he may change his tune with that I suspect. But what he's looking to is wage growth and unemployment rates. And what we have seen, we're seeing, uh, unemployment rates come out this week. So we'll have them come out yesterday. I expect that Thursday's unemployment rates will show an increase in unemployment because as we come out of lockdown, more people are looking for work, which means more people are registering as unemployed. So the unemployment rate will have a bump. And what the Reserve Bank has said is they're looking for, uh, in that wage growth, that looking for two things, unemployment to go down and wage growth to be about 2 to 3%. 

And they expect that to take two to three years to happen. Now curious isn't it that initially the line was 2024 interest rates won't move til then. Now it's, it's about wage growth and two to three years, which puts us, uh, the first rate happening in potentially 2023 so a full year earlier. Now traders think that's gonna happen differently. Economists believe that those rate rises will happen, will happen sooner. They believe that it will happen, most people are predicting, between May and November. And part of that is because we are already seeing inflation start to rise across so many sectors. We've products simply going up and the shipping costs going up. But what we're already starting to see is wages climb. As there is a shortage of wages in many industries. Certainly my hospitality friends are saying now it's hard to find staff, which means they're having to pay more for them. 

So I believe that over the coming months, we're gonna see two things. Inflation rates start to increase and, or three things. Inflation rates, increase wages, unemployment rates start to come down and wage growth start to rise. And as you see that happen, you'll start to see more talk again and again of interest rate growth and maybe the market starting to get a bit fearful and maybe becoming a little bit volatile. 

Now, what is all this talk of inflation, unemployment rates and wage growth mean for you?  

Well, if it comes to your interest rate for your home, then this is why I recommend repaying at 1% - 3% more so that when that interest rate happens, you are not concerned. And we are paying that into our offset account. But we're also looking if you've really nervous about this, if your sleep at night factor, which is my litmus test, if your sleep at night factor is affected, then what you might consider is locking in now half of your mortgage or a percentage of your mortgage so that when those interest rates start to happen, you are not concerned because part of your loan is secured. 

Certainly what we are seeing though, and what you need to remember, is variable rates at the moment are lower than fixed rates. So you've gotta factor that in. Having said that there are some great fixed rates still around. So your three year rate, you're probably still gonna get a great rate.  

But the other thing to remember is if you have a long term view on investing, whether it's investing in shares or investing in property or buying your home, then these things aren't going to matter. If there means that there's gonna be volatility in property, if there means there's gonna be volatility in shares, but if you have that long term view, it really shouldn't matter. Will we see some, uh, retraction with the share market? Will we see some retraction in property prices in the short term? 

Again, if you have a long term view, it doesn't matter. And certainly if you are buying shares for example, or ETFs regularly, then sure you might be buying them at the high, but you'll also be buying them as they fall. So your average cost over time is going to smooth out.  

So inflation rates, unemployment and wage growth and what it means for share market, property and interest rates. These are all things you are going to start hearing more and more. And as we know, the media loves the click bait headline. 

So when you see this, I want you to think it doesn't matter. I've made decisions and I've taken moves when it comes to my mortgage. It doesn't matter because I have a long term view on investing. So this is a nice to know, not a fearful thing.  

And when it comes to 'dine now, pay later', you're not gonna use that, right. I mean, I didn't even need to speak about that. We know, I, I know you've got that already. All right.  

If you've got questions or if you see an article and you'd like me to comment on it, then make sure you send it to hello [at] melissa browne [dot] com [dot] au. Otherwise have fab Friday and a great weekend.