612 ABC Radio Brisbane, the combination of fading globalisation, aging populations,
populist politics and huge budget deficits and surging energy demand means inflationary
pressures will remain higher for longer, according to many commentators. Are the markets ready
for this? What about you and me? In Australia, the Reserve Bank is saying no downward movement
on the cash rate this year. So let’s look at where we are at the moment with Peta Tils.
Peta Tils is head of funds management at NatGen. Good to see you again, Peta.
Hey, Steve.
Who is NatGen? You want to tell me? I’d like to give my guests an explanation in their own words.
Sure.
Who they are, who they represent.
We literally help people invest in commercial property. So people get really good investment
returns, owning shopping centres, warehouses, buildings.
Productive property.
Yeah, productive property. We handle all the work and give them income.
All right. Well, thanks for coming. Let’s look at the finance. So what does the US Federal
Reserve cut of, what, 50 basis points double what most of the markets are expecting? What does
that mean, Peta Tils?
So Steve, yeah, well, for us, okay, so just remember both economies are different,
structurally different. We’ve got in Australia with our homelines and things like that,
around about 75% of our homelines are on a variable rate. Over in the states, they borrow
for 30 years and fixed rates. So when they raise interest rates over there, it doesn’t
have the same effect. It’s more on the short term side of things like car loans and things like that.
Whereas here, if they hike rates here, we all feel it because we’re all on variable rates,
well, mostly. Mostly, yeah.
So yeah, so over there, economies kind of beavering along. They’ve got about a 2% growth rate over
here. We’re on about 1%, so we’re a bit more anemic and that’s because of that factor. And
plus we’ve got, everyone’s got high costs because of inflation, but they seem to have their inflation
a bit better tamed than we do. So…
Yeah, Jay Powell said things aren’t going to sort of have a downturn. So why the emergency,
what looks like an emergency rate cut of 50 basis points instead of the normal point in time?
I wouldn’t characterize it as emergency. It is actually priced in that they were going to do
1% by year end. So that was kind of factored in. So whether it was just a series of 25s or
it was a 25 or a 50, well, he did a 50. So he did it.
He can. Okay.
There’s probably another 50 coming by end of year, which is what’s factored in there.
So yeah, it’s not too bad, but it will depend too on who wins this election for them because if
Trump wins, he’s talking about cutting all the taxes and doing all that sort of stuff. So remember,
when we talk about an economy, there’s monetary policy, which is all this interest rate stuff.
And on the other side of the coin, there’s what government does.
Fiscal policy.
Fiscal policy, correct. So if they’re cutting in, sorry, cutting tax rates, that is super
stimulatory and that’s injecting sort of money back into the economy.
How will they pay down their debt? They’re a trillion dollars on debt interest payments already.
Never will.
Frikey.
So yeah, it’s look, everyone’s living for the minute, I guess.
Which is not terribly prudent.
No.
So our reserve bank says no movement in our cash rate till next year. Do you believe them?
I do. I think that’s kind of a fair assessment.
Something that was, yeah, so I’ve sort of spoken about that 1% growth rate in Australia.
We still don’t have our inflation tamed. Like in the States, they’re under 3%.
They’re about 2.5%, 2.7%, I think is their rate. Whereas we’re about a percent higher with inflation.
So we’re still not in our 2% to 3% band.
Anyway, so I, she’s focused on that. That’s fair enough because, you know, if, if inflation keeps
spiraling, it just makes everything more expensive continuously and then people need more wage rise.
And inflation is still very sticky here, isn’t it?
Correct. Because it’s embedded in things like wages and which,
which don’t move. You know, you can’t just adjust that unless you lose your job.
Yes.
But interestingly, Deutsche Bank pulled out a report this week and they called it labor hoarding.
So that’s a new term I hadn’t heard of that one.
I’ve not heard that one, no.
So essentially what it is, so instead of sacking people because you don’t need them,
it’s literally less hours worked. So instead of working a full week, maybe they’ve got you working
one or two days a week or something like that. So that’s labor hoarding.
So people are still employed, but just on less hours.
On less hours.
And it means you’ve still got access to the skill set if needed when business, when the upturn comes.
If you need to ramp it up.
And it means you’re competitive and get them.
Correct. And we, we had inflate, sorry, we had unemployment,
I’m sorry, employment data out yesterday. It still stayed the same, right?
So we didn’t get a bump higher or anything like that. So,
you know, 4.2% unemployment rate. Remember, we got as low as three and a half.
Yes.
Last year. So 4.2 is still pretty much considered full employment, which is a good thing.
What was interesting is under employment rates. So from 6.3% to 6.5%.
So people are getting more hours.
Less hours.
Sorry, less hours.
Less hours. They want to work more.
Yes.
So this kind of feeds into this labor hoarding theory.
And then the other thing to have a look at is some of the forward-looking indicators that
weren’t necessarily in those numbers, but like job ads that they look at, employment intentions,
there’s different surveys that come out. They’re all forward-looking things
and they’re weakening. So the labor market is cooling in Australia, but not quite yet.
And then conversely for us, we’ve got, I think there’s over half a million
net new migrants coming into Australia. So that’s coming in every year.
Yes.
That’s a lot of people. So for us to maintain this unemployment rate,
we need to be creating about 40,000 new jobs each month, which is kind of happening.
But this last, what was provided yesterday in the numbers,
it was actually part-time employment that was the bulk of the numbers.
Okay. My guess is Peta Tilse. Peta Tilse is Head of Funds Management at NatGen.
It’s five to 10 news in five minutes time. This is 612 ABC Brisbane.
So businesses are hedging or looking at hedging. How are they doing it?
So even though our cash rate is 4.35%, like that’s the official cash rate,
when you look at the term rates, so if you want to lock in a rate for three years,
the interbank rate is around about 3.5%. So what that’s saying is the markets are
expecting interest rates to come down. So it is coming, but just not right now.
So but having said that, does it get any better than that? Well,
because businesses are looking at these things over the next three years, possibly not. So
I mean, I know for us, like we look at what we call the capital stacks. So we have investors
investing in these properties, but we also borrow money and we look at that kind of combination
together to then buy the property, for instance. But we are looking at hedging certain things
hedging certain things because it is attractive at the moment. Now for mum and dads out there
with their home lines, it’s not dissimilar. So if you actually have a look at some of those
variable rates at the moment, I don’t know, there is sort of like the mid sixes still,
or maybe even higher. Have a look at like your two or three year or four year rates,
they’re there in the fives. And it’s possible that could come lower. It just depends on what
margin your respective bank or financier wax on top, so to speak. So you think people should
be looking at two to three year fixed mortgages? If it suits their situation, have a look. Yeah.
One of my listeners, Brian asked, why can’t Australia be like the United States and have
fixed mortgage rates, interest rates for 30 years? What changed and why us, Brian? Any ideas?
I would love that because I literally went when those those rates were at 2%. I begged my bank,
can I lock it in any longer than five years? So technically, I’m still on a 2% rate, which is
great. But you know, I would have lapped that up like no tomorrow. That sort of market in Australia,
unfortunately, isn’t as deep. We talk more about the 10 year Gavi bonds in our market. And really,
it’s up to the banks. No one really wants to hedge for 30 years. And it’s too complicated for them,
I think. Too far out for them. I think so. I spoke with Lee Fanonsen earlier this morning
from macrobusiness.com, he’s a former Commonwealth Treasury official. He said despite immigration,
the high levels of immigration, Australia’s economy isn’t going that well. I just want to
play you briefly what he said just to get a gut reaction. And the fact of the matter is,
Australia has been going backwards for six consecutive quarters in per capita terms,
which is the longest continuous decline in per capita GDP in the nation’s modern history.
Any thoughts? Yeah, I mean, they call it the capita recession. So a recession is defined
by two negative quarters of growth. And as I said just before, we’ve got GDP running at 1%.
It’s not a lot. It’s pretty anemic. It’s nothing. But you also consider those 500,000 people coming
into the country every year at the moment. And you look at that as a growth rate, that’s, I think
2% to 3% somewhere there. So per capita, we’re actually going backwards. So that is correct.
Peta, thanks for coming in once again. Pleasure, Steve.
Peta Tilse, is head of funds management at NatGen.

ABC Radio Brisbane.
You’re listening to Steve Austin.
So inflation has come down a bit, not earth-shattering, but a little bit.
What does it mean here in Brisbane, the household, the mortgage, the food?
Peta Tilse is head of funds management at NatGen.
I should also mention that Peta is the mother of three boys
who consume more food than a football team, apparently.
Peta, thanks for coming in.
Spot on, Steve.
So what’s happening in households when inflation has come down a bit,
but it’s still hanging around, Peta Tilse?
What’s going on here?
I mean, I can talk anecdotally, Steve, but we’ve actually got data to prove it, right?
So, I mean, even yesterday, we’ve had the Commonwealth Bank saying that
it’s actually mum and dad’s young families that are feeling the pinch at the moment.
So that’s in their data.
We’ve also had Coles and Woolworth’s report this week.
So we all need to spend money on fruit and veg and meat and everything.
You can’t avoid it. You have to eat.
Can’t avoid it.
So between them, they’ve made about a $3 billion profit,
which isn’t huge in the scheme of things.
It’s probably like, I don’t know.
To me, it sounds a lot, but for a giant company like that all over Australia,
it’s not that much.
But what Coles, Coles’ CEO actually came out and she was talking about
the various trends that they see.
So don’t forget these guys not only can look at the sales data,
they’ve got that flybys and all that sort of stuff,
that deep data that they can look at.
And there’s things like No Meat Mondays.
There’s high sales of the own brand products, so the cheaper options.
People are buying the cheaper cuts of meat.
So maybe having sausages instead of chicken or instead of red meat
and only buying things on sale.
And to be honest, I can vouch.
That’s what I do.
You only buy on sale now.
Things are so tight.
Well, it’s not tight.
So you focus on it?
Yeah, it’s more that if you can buy yogurt for school lunches
when they’re 50% off or 30% off, why wouldn’t you?
So I give the kids the phone to get their favourite flavours, etc.
And I say, right, you can only buy the stuff that’s on sale.
And then because you just wait another week and there will be a sale.
So, you know, there’s a little bit of…
In this inflation data, fresh fruit and vegetables,
the prices are still going up.
Correct.
So the inflation data was interesting.
I mean, this is a pulse.
This isn’t the official CPI per se,
but it is showing that it’s moderating.
The electricity rebates that we’ve seen within the state,
like Queensland and WA, apparently,
the two states that sort of got captured in this data.
If you actually excluded the electricity price rises…
Sorry, the rebates, I should say.
Electricity prices actually went up 0.9%.
So, yeah.
If not for those rebates,
electricity prices are still going up.
Correct.
And around the country, there’s federal rebates,
and that’ll be coming through in September…
Sorry, in the August numbers,
which will be reported this coming month.
In Queensland, we had car registrations.
We’ve got 20% discounts.
We’ve got the 50 cent fares,
and WA’s got something similar going on.
The federal rent assistance is not actually
in this particular data point,
so it’ll come this next month.
And we’re seeing disinflation,
so things are cheaper for clothing, footwear,
and some other household items like couches and things like that.
So things you can delay buying or delay purchasing?
Not necessary stuff.
Not necessary stuff, but stuff you have to buy.
But fruit and veg.
It’s going up, up, up.
Petrol, food, fresh fruit and vegetables.
Rent.
Rent.
Phenomenally.
You raised your eyebrows.
Rent is a really troubling one, by the way.
Well, it is for everybody, right?
Like, you’ve got to live somewhere,
so…
And if you’re a owner-occupier
and you’ve got a mortgage,
well, you know, you’re clearly filling the pinch there,
and if you’re renting and you’re an investor renting,
sorry, with an investment property,
you have to pass on the borrowing costs.
So that’s where the interest rate thing kind of kicks in.
How would you describe those electricity rebates?
Are they a Band-Aid or are they something substantive?
I would definitely call it a Band-Aid.
I mean, it’s helping right now,
but we’ll, like, get us through this.
I mean, we’re probably staring down the barrel
of higher unemployment coming as things slow down.
Investment spending…
There’s been other data points out, retail spending’s coming off.
So let me jump on that.
Every time I buy a coffee for somebody,
I ask them how’s business,
and they go ashen-faced, particularly in hospitality.
But retail looks like it’s really in serious difficulty.
How would you describe it, Peta?
That’s my… You know, what would a journalist know?
How would you describe it?
Well, look, I mean, there’s a lot of cost pressures.
I mean, they’ve still got electricity costs, too,
just like a household.
And they’re going up.
And it’s going up.
And things need to be transported to them and so forth.
So it all kind of builds.
And the way around it is to have better productivity.
I mean, if you’re running that coffee shop,
and you’ve got a 15-year-old working for you
and you want to open on a Sunday,
I actually didn’t know this until my kids were actually working at Mackers.
But there’s a deal done with unions and McDonald’s,
and this happens with a lot of the big businesses,
where instead of paying two times the going rate,
so $8.80 an hour or whatever it is that they would be getting…
On weekends or something.
So instead of getting sort of almost $17-ish, whatever that would be,
they’re getting $12 an hour.
So there’s…
So McDonald’s, with a union, did a special deal to pay the young kids lower rates.
So McDonald’s had… Different loading.
Different loading.
So McDonald’s have a competitive advantage on weekends
when it compared to other hospitality or cafes and food shops or food stores.
And so it means that that little 15-year-old catching the bus in OK Shul
it’s $0.50 at the moment.
But what if it was a $5 fare from wherever they’re going to,
if they’re coming into the city or something like that?
There goes half your pay.
And then there’s rules around how long you can work,
so four hours at a time and things like that.
So, yeah, it’s all…
There’s things that we need to improve with productivity
and, yeah, just sort of the other sort of inputs into what we’re producing.
Peta Tilse is head of funds management for NatGen.
She’s also a mother of three boys.
This is 612 ABC Brisbane.
You travel around parts of Queensland for your company.
What do you see economically?
What do you see because you travel outside of the southeast city built-up area?
Sure.
So this week we were out at Toowoomba and then sort of out at Dolby.
A hell of a lot of activity, which is great for the local economies.
But we dropped into one of our…
We’ve got IGA shops as part of the investment portfolio,
but dropped in to have a look at it and see what the activity was like.
I was walking around the meat aisle and you’re going to laugh at this,
but I see I fill it at $19.99 a kilo and I think, oh my God, that is cheap.
So I’m with my boss and here I am walking around with the two kilo thing.
I fill it because I’m like, I’m going to feed my children this.
And then I was with another colleague and she went, yeah, that is cheap.
And the reason it’s cheap, Steve, is when you go to Coles or Woolies,
it’s like $70 a kilo.
So that’s the difference.
And why is it so different?
Is it just because it’s a regional area or is it because it’s an IGA
compared to a Coles or Woolies?
It could be either or it could be both.
But people in the land are actually complaining about cattle prices.
So someone’s making money there.
I have to go to news in a moment.
What does this say about the federal government’s moves to tackle inflation
or the RBA’s moves to tackle inflation?
Well, they have to do what they have to do,
but they also talk in the papers at the moment that maybe they shouldn’t
be looking at inflation.
They should be looking at broader base things.
But their mandate is to have a stable economy.
They have a federally set mandate.
They’ve got to get it down.
And it impacts all of us if they don’t rein it in.
And is the federal government helping get it down or hindering?
They’re spending a lot.
That’s hindering.
That’s adding to it.
Peta Tilse, thanks for coming in.
Peta Tilse is head of funds management for NatGen.