Latest / Money Grows on Trees / #318 - The RBA Is Sending Inflation To 5%

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#318 - The RBA Is Sending Inflation To 5% · Money Grows on Trees

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  The RBA just made one of the biggest policy miscalculations of
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  this decade. They hiked rates by 0.25%. Most people
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  think that means that inflation is under control, but the reality is it
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  will barely make a dent. Inflation was already at 3.8% before
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  the oil shock, which means it didn't really slow down inflation last
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  month when they only bumped it by 0.25%. It didn't work, which
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  means the RBA is the one that's going to send inflation to 5% because they
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  can't get under control. I'm Lloyd Ross, multiple seven-figure investor and
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  entrepreneur, and I've helped thousands of everyday people get out of debt and
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  build real wealth. And in this video, I'm going to show you exactly why
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  the RBA's decision was wrong, what it means for you and
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  your mortgage, and how many more rate hikes are going to come before this
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  is over. So first, the decision, what actually happened?
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  So here's the facts. The RBA met and the policy board voted
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  to raise the official cash rate here in Australia from 3.85% to 4.1%, 25 basis
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  point move, right? The second consecutive high, because last month in Feb,
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  it was also 0.25%. Now in six weeks, the RBAs added
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  50 basis points, completely unwinding all three rate
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  cuts delivered in 2025, which they should never have done, right?
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  So everything gained last year, gone. or
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  it was a progressive perceived gain because it really wasn't real, right?
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  So for households, it's been brutal because it's like, oh, here's this alleviation
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  and help. Oh, and by the way, we're taking it back. We should have just left
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  it there, right? So for someone on a loan of say $730,000 odd, which
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  is would be what you
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  buy a property for say, 800, 900,000, you borrowed 736,000, right? Depending on how you did that with LVRs. So
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  the hike yesterday adds about $118 a month, right?
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  On top of the 110 in Feb. So it's starting to get a little bit harder now.
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  So $228 per month extra, which is a little over 50 bucks a
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  week. It's not
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  really enough. But the most significant thing about the number was
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  the actual vote. So the board at the RBA voted 5 to
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  4 for a hike. So it's the first non-unanimous decision. So
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  they're in loggerheads as to what to do. Now, I think half of them probably own
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  properties and half don't. But it was the
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  one vote that swayed it, right? So it's not decisive as to where to
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  go. They're a little bit It's a bit of a coin flip, so to speak, right?
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  So here's what the governor, Governor Bullock, actually
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  said. The journalist asked this question, why not increase it by 50 basis
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  points and get the job done, right? So Bullock goes, we
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  can get into the restrictive territory in a reasonable time. And she said,
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  0.5 is a lot. We're trying to do this in a way that keeps a reasonably stable
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  labor market. So for her, She
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  thought, well, if I go to 0.5, then we may see
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  some unemployment, and she doesn't want to do that. I
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  don't know if we would, but she's got more
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  data than me. I would have suggested a 0.5, but, you know, because the
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  0.25s are just slowly ripping it away. But
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  she also said that the oil shock that
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  has happened recently in Iran, it actually wasn't factored into the
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  race. I believe the oil shock, had it not happened,
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  it would have been 0.5. And that would have made a lot of sense. But I dare
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  say what she's anticipating is that the oil shock, where oil's shot up
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  to over $100 a barrel from 59 in a
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  short period of time, we're going to see inflation cost
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  in price of goods go up. Like, up a
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  lot. Because oil's in everything. And I've said that on how many episodes? If you go
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  back and listen to that show, I've said that for the last three months. And
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  it's happened. And so all's in everything. So price inflation, things
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  are going up. Now that may curb spending. So it's inflationary
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  in pricing, but it's deflationary in the spending of
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  the economy. So the fact that the oil shock has been around would
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  dictate maybe they're like, you know what, I think the oil shock might stop people spending
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  as much because they're going to pay more at the tank for their car petrol, and
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  they're also going to pay more for goods and services. So there's going to be some level of
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  spending curtailed in that particular scenario
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  as well. This is why she's like, well, if we increase their mortgages a
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  bit, plus the petrol, plus, they're probably going to stop spending. We'll see.
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  So the RBA sees inflation in unison with
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  the oil shock. They're trying to
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  do both at the same time. And it can't be easy. So the
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  inflation was already running hot before the
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  oil shock. That's probably the reasoning around why
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  they didn't do a 0.5 raise. However, this is an
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  RBA that has probably caused inflation to go up
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  because of their lack of making bolder moves
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  in the rates. That's what's happened. So that's
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  the type of RBA we're dealing with. They should have left the
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  rates at 0.1% instead of dropping them, and they dropped them
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  to alleviate the pressure on mortgages which exacerbated
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  the property prices and it's almost like they just want property to go up. So here's
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  why the 0.25% could be the
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  wrong call. The first reason is inflation was already out of control
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  before the oil shock. So we may see not
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  just another 0.25% raise, we may see multiple. The
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  other reason is the real rate wasn't restrictive. So
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  it didn't really do anything. You know, like when they dropped the rate by
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  0.25% last month, it didn't do anything. I don't think the Australian public's getting
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  the picture. Because if you think about it too, even if it's a 0.25, which
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  it is, it's 50 bucks a week. People spill that. I just don't think it's
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  enough. You might see this, 0.25. 0.25, 0.25, 0.25, right?
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  Because they're just trying to catch it all the time. Now, where
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  that's effective is that they don't overstep the mark, but where it's ineffective is
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  people don't get hurt fast enough, so they don't curtail their, the pain
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  is too slow. It's like the proverbial frog in the actual
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  pot that sits in there and gets boiled over time and dies. Whereas if you have
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  a frog and you chuck it into a hot water, it jumps right out. If you just keep, slowly
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  growing this away, people aren't going to really respond to it as much
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  as what they would if they just did it faster. So every
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  under move makes the destination for inflation pain greater, which
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  means it's going to get higher and higher because they're going slower, we
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  may end up with a lot higher interest rate if they just gone faster earlier. So
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  what should you do right now? I have a solution. My book
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  Money Buys Happiness simplifies investing and wealth building
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  with practical steps. Get your copy via the link in the show notes and let's
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  get your money working for you. Now back to the episode. So what
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  should you do right now? Here's four things to do this week to
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  prepare for this, right? There's likely going to be two or three or
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  four more rate rises. Okay, so if you have a mortgage with a variable rate, your
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  payments are going to continually go up. Okay, so your window
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  to act is going to diminish, right? Which means you
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  if you have any cash savings, what you will be wanting to do is certainly
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  start paying off or not paying it off, but being able to service
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  that mortgage, right? So being able to set
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  aside some money in preparation for a higher mortgage repayment, okay? If
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  you've got, if you're someone who, perhaps you've got a mortgage that's under control, and
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  you're someone who's got, you know, wants to make investments, just
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  understand that when
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  interest rates go up, generally speaking, we see a pullback in
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  the stock market. So you may see opportunities to add to your portfolio over
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  time with higher rates, especially in Australia, because every other country's dropping their rates,
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  but we're increasing ours because we've stuffed it up. So
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  if you're seeing rates go up, generally speaking, the market will come off. Commodities
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  and oil seems to be very solid. So if your portfolio is positioned in
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  an Australian ETF, you'll have some exposure to that. So it won't be impacted as
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  much as, say, an ETF that was all tech-related. So
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  if you're someone who's an investor, if you've got minerals or resources and
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  you've got energy, you will be somewhat impacted. And to
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  a certain extent, banks, because as interest rates go up, banks actually
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  make more money from their net interest margin. So I think if you've got an ETF,
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  you're going to be OK. But if any weakness, I think it'll be
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  an opportunity to add to your portfolio if you have the cash. I don't think
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  if you've got someone who's got cash savings, I don't think banks are in a rush to
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  pass on cash savings in interest-bearing deposits. They
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  don't like to do that. But if you are someone who's got a term deposit, you're
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  going to eventually see more return on your cash savings, which
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  is cool. But the other thing, too, is be prepared for the fact that when rates
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  go higher, you get pinched on the mortgage more. You
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  then, with oil at the same time shocking and pricing up at the same
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  time, you're going to have higher petrol prices and you're going
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  to have higher price of goods. So just knowing all those things, start
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  to put things in place now to prepare for it, right? They're
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  the things you can do starting from today. That's the impact it's probably going to have. So
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  right now they've moved 0.25. We'll see what happens with the oil shock. There's
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  a likely chance another couple of 0.25 moves.
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  It doesn't seem like the RBA is going to do it quickly. And if you're someone
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  who's got a mortgage and a high LVR, just be aware that
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  you're your groceries, your petrol, and
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  your mortgage is about to go up. So if you ever wanted to start earning money,
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  now's the time. In fact, it's probably too late. You should have built the
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  arc before it started raining. And I've told in the book, start
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  developing income before you needed it, right? So I
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  hope that makes sense. I hope it gives you a bit of a picture as to what I feel about the
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  rate rise, what I think they should have done, what I anticipate to continue
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  to happen, which seems like it's going to happen. And if you've been
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  following this podcast for a while, you will see that Pretty
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  much all of the episodes that I've done as to what I'd
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  anticipate would happen with inflation and rates is now happening. And
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  so I think you can probably expect that this episode will be no different. This
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  is how I see it unfolding. I'm sure others do as well. But the
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  trick of it is to know what's maybe going to happen and then start planning
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  for it. So start taking action today on your finances because I
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  feel like we're going to have high interest rates for longer. So, if
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  that makes sense to you, hit the subscribe button, you'll get every episode faster. And
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  of course, leave a comment below, I'll come and reply to you. What do you think about the
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  RBA? Do you think it was the right call? Do you think it should have been 0.5 or 0.25? I'd love to
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  know in the comments and I'll see you in the next episode. Thanks for listening to Money Grows on
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  Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts
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  and Spotify and subscribe to us on YouTube so you never
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  miss an episode. And if you're serious about building wealth, make sure to
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  check out the links in the show notes and follow me on all social media
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  platforms at Lloyd James Ross for more. See