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#310 - The RBA Isn’t Done Yet… · Money Grows on Trees

• 0:00
  Everyone thinks the worst is over. That the RBA is done, rates are going to stabilise, maybe even drop.
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  But they're wrong. And if you believe them. If you think your mortgage is safe, if you think property
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  prices are going to just keep climbing forever, if you think the cost of living is going to ease,
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  then you're about to get blindsided. The truth is, inflation isn't dead. It's sitting at 3.8% per
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  annum, well above the RBA's inflation target. And the data that's coming in over the next few
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  months is going to force them to do the one thing that will rattle every single Australian
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  homeowner. They're going to raise rates again, not hold not cut rates. And I've been saying this on
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  the show for a long time, and it's actually come true because that's what they recently did. So I'm
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  going to show you exactly how it's about to happen. The inflation data. They're looking at, the
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  pressure they're under and what this means for your mortgage, your property value and the cost of
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  living for you. Right now I'm Lloyd James Ross, seven figure investor and entrepreneur, and I've
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  helped thousands of business owners and professionals turn financial stress into success.
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  If you're stuck in old money habits, overwhelmed by investing, or unsure where to start, this is for
• 1:07
  you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve
• 1:12
  financial freedom. It's time to make your money work for you. So let's first discover what the RBA
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  got wrong. The goal of the RBA is for stable employment and prices. That's objectively what
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  they what they need to be doing. That's their focus. Okay. And what that includes is making sure
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  the inflation target doesn't get out of control. Right. And making sure employment is stable. And
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  this is what they want to focus on primarily. Right. Their inflation target isn't just arbitrary.
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  It's known that it's around the 2 to 3% on average, but let's say roughly about two because
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  when it's 2%, inflation helps the economy through spending. Right. That's where the economy is
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  healthiest. But what inflation actually is. It's the price of goods going up over time.
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  right, and erode your purchasing power. Ideally, you want stable inflation, not runaway prices. So not
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  high inflation but steady 2% inflation because when that happens it encourages people to spend.
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  But it also keeps prices fairly stable. So it doesn't erode a lot of purchasing power. And so in
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  the 70s when it ran away it was a serious problem. And rates went back up to 17% to crush it. Okay. So
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  the latest consumer price index, which stands for CPI Consumer Price index, which is a fancy word
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  for inflation. The last figure and by the way how do they calculate that is they get a basket of
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  goods whether it be fuel and food etc. rent. And they put them into a basket of average prices and
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  they assess the price in one year against the next year. Does that make sense. And so that's
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  where you can determine the percentage increase in prices of things. Okay. So
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  Australia's inflation is now 3.8% annually clearly above the target. And rising not
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  falling. Okay. Isn't that? Or do you feel like something's off? If inflation is still really high
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  3.8%, it's almost double what they're aiming for. Shouldn't the RBA have acted earlier? So that's
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  what's caused them to hike. So here's what happened recently. They had to hike interest rates
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  last Tuesday because of this runaway inflation. So they raised the official cash rate the reserve
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  Bank rate by 0.25%, taking it to 3.85%. Why? Because they had strong inflation
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  data come out, particularly in the second half of 2025, and a tighter labour market, which means
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  there was actually pretty good employment. Employment is rising, people are getting jobs. And
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  so with that in mind that is stable. And then they would want to look to stabilise prices. So what
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  has happened since then is as they increase the rate of the reserve rate, the major banks,
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  Commonwealth Bank, Westpac Bank said they've now incrementally increased their retail rate is what
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  they lend money out at. So it's hurt borrowing capacity. And of course it would make it much
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  harder for those who already owe hundreds of thousands, millions of dollars to start paying
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  back their mortgage. All right. So here's the slice. Most commentators are not talking about what this
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  actually means for real people, right? Everyday people over the next 12 and 24 months. Okay,
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  so just to give you a bit of a we just go back and revisit what's happened in the past with
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  inflation, with rates and with property. Over the past, say, decade, property prices have climbed
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  dramatically. I would say some capitals have had property gains of over 100% in the last ten years,
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  certainly even in the last five. Right. It's been a very bullish property cycle. Okay. And why interest
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  rates matter to that is because higher rates don't just mean more expensive loans. They mean
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  lower demand. So lower price growth in housing. And if it gets pushed far enough we start to see real
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  estate declines. And that's not such a bad thing. But it does hurt those with mortgages because
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  they will have to foreclose on mortgages if they can't pay the repayment over a three month period.
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  So you start to see these things in banks called bad debts start to go up because people start to
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  not be able to afford their mortgages. Now, at the moment they can because rates aren't climbing too
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  fast for them to hurt them instantly. It'll be like a slow burn over time, and what you'll start
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  to see is auction rates will start to fall. The days on market will start to increase, and you'll
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  start to see a slowdown in the real estate market because people just cannot afford to borrow
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  anymore, because rates are too high and the price of property is way too high, and or they are
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  defaulting and they're having to sell. And when this happens, you're going to see a price
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  adjustment in real estate, which we need to have. However, it can cause a lot of problems for
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  everyday people. And I believe this is what's going to happen because if they don't increase
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  rates, then we're going to see price increases of everyday goods to explode. And we're going to have
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  a real inflation problem. Right? We don't want to see you walking down the street with a
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  wheelbarrow of $50 bills, just to buy a bottle of milk. That's what can happen. That's what happened
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  in Wyoming, in Germany. And so we have to make sure that they're stabilising prices. What that means
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  is if you own a mortgage right now. Buckle up, because I think it's going to get worse. Okay. And
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  so you're going to see a lot of major cities, real estate markets start to slow down a little bit.
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  And if you add in stuff like immigration flowing etc., that's going to increase. All right. Just
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  quickly, if you're ready to take control of your finances but feel stuck on where to start. I have
• 6:11
  a solution. My book, Money Bias Happiness simplifies Investing and Wealth Building with
• 6:16
  practical steps to help you achieve financial peace. Get your copy via the link in the show
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  notes and let's get your money working for you. Now back to the episode. If higher rates squeeze
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  buyers and slow prices in real estate, do you think early RBA cuts were still justified? Do you?
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  I don't think they were. I think it exacerbated the problem and I believe they were just
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  harbouring and helping and protecting real estate investment because in Australia everyone's a
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  property addict. All right. So, uh, what has happened in the realm of inflation is housing inflation is
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  5.5% food, 3.5% like the price of food is just going up and up and up. I've mentioned so many
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  times on this show. The price of a maxi bond is $6.60. What the heck happened to that? That's like
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  doubled in price in the last 5 or 6 years. So you're going to see this start to play out, I
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  should say, in your regular everyday shopping, your rent and so forth. Now here's the challenge.
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  Wages haven't grown at the same rate. That's the issue. So if you're getting wage inflation at the
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  same rate, then it means we're probably even even keel, especially if you have a well-paid job. But
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  if it hasn't, it means that things are just getting more expensive, right? So wage growth has
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  lagged price increases in goods, meaning households have got less real income than just a
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  year ago, three years ago, way less. In fact, I think it's Australia that leads the world, which is
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  really sad in per capita GDP growth, meaning the country might be growing, but per capita per head
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  per people here, we are not growing. In fact, we're going way backwards. And that's why it feels like
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  you're a lot poorer. But also the fact of the matter is this if your wages are where they are
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  now and inflation is going way up and it costs a lot more to do things than what's going to happen
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  to is even if wages continue to go up, they're not going to change the tax brackets, which means
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  you're going to pay more taxes and you're going to get progressively poorer from the price of
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  things. And the fact that you're going to be in a higher tax bracket, okay. So inflation is not a
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  good outcome for any of us. All right. So what as a result of that, what has happened in the data just
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  recently is that household spending has started to fall. And that's why you're seeing stocks like
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  JB Hi-Fi go from $120 a share down to 8070, back to where it belongs. Because, you know,
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  people are just buying less things. It's starting to hurt, right? And you may have experienced this
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  around a barbecue or a party at your friend's house. People are all talking about the cost of
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  living. So it's actually starting to hurt people now. And equity can't take you forever. Like people
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  are like, oh, sorry, I've got all this, like 600 K in equity. Well, every time you borrow home equity,
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  it's a borrowing and you've got to pay 5 or 6% on that borrowing to then spend your money. So I
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  think a lot of people maybe living on equity, maybe you've maxed out credit cards and we're at
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  the end of it. And I think you're going to start to see now people really struggling, which is not
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  good. Right. And it's just going to get worse because they have to increase rates. So going back
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  to the wages, if your wages aren't keeping up with the rate of inflation growth, even if we're
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  growing better as a country, you're not growing your wealth better. Right. So what comes next? Well,
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  based on the data and based on government spending and based on the fact that the RBA got
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  it wrong by reducing rates, which I mentioned on this show, they shouldn't do. If you go back far
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  enough and listen to the episode, you'll see me going, I don't know why they did that. That was
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  really stupid. Obviously we're going to see more inflation now. And, you know, a few months later,
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  while I hear it is don't take a genius to work it out. They should have put it up a lot more. They
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  should have kept it at four and a half. They should have kept it not reduced it. They should
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  have just let the market build around the rate instead of trying to follow the rate all the time.
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  It's typical of this government and the people in power. They're just trying to appease everybody
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  and typically property investors and property owners. Right. Which is a lot of people. So are more
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  rate hikes possible? I would say absolutely. Almost with certainty. It's going to happen because you
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  see how they're like, oh, we'll do 0.25. They're just delaying it. Like they should just whack it
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  up a whole percentage point above and let the market swallow it. Um, instead of just ripping this
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  bandit off so slowly. Right. So the RBA officials have repeated that inflation pressure is
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  obviously going to remain high. And they say they're not going to hesitate to act. Let's hope
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  that they act. So I would anticipate that we're going to see a 0.25% rise again and potentially
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  another one this year. There could even be three. All right. And you're going to see this passed on
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  to the banks. I know that CBA the other day just passed the rate rise straight onto its customers.
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  Okay. Um, how this will affect the property market? Well, it will certainly reduce the growth. It'll
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  slow by activity and that's a good thing. But we'll also do is put people under more stress in
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  their mortgage repayments. And it's going to make it harder just to, you know, get by. Because all of
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  a sudden if you add unemployment there for whatever, like let's say for example, I know it's a
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  long tail risk, but let's say the onset of AI that's coming through, let us say that AI
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  takes a lot of jobs, and all of a sudden we have a spike in unemployment, right? Then we're going to
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  have a serious problem, because not only do we have unemployment, but we've got rising rates. And
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  that's going to be what could possibly cause a serious financial correction and some challenges
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  for a lot of people. And that's a real possibility. We're seeing how fast it's overtaking software.
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  We're seeing, you know how I mean, it may take longer than we think, but I think it's coming.
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  Right? So given what we know about the inflation target and how it's right, it's way above by
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  double and rates are climbing by the facts and the data that they just increase rates. And they
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  will again I would anticipate and the impact on people's wallets. Do you think the RBA should have
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  done something different earlier. Do you think they should have drop rates? I don't think so. I
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  think they got it wrong and I think they've let down the Australian people more than once. They
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  let us down when they told us rates are going to stay really low and then they smashed them up
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  after Covid. They also let us down by dropping into 2.1% during Covid. And so we've been let down
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  time and time again by the RBA. So you can't even take on board what they say with any level of
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  trust and certainty, and that's a real challenge. So right now, inflation is higher than the RBA
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  wants by a factor of two is double. It's 100% higher than they want. The RBA has raised rates by
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  up to 3.85% to fight it. Right. And it's likely they're going to do it again. The rate rise will
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  slow the property growth which is great, but it'll squeeze households budgets, which is not so great.
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  Who knows how far it can go. What if it goes to five, six, seven, 8%? We just don't know, right?
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  Because the government is spending so much money with things like the NDIS that's blown up to $50
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  billion from $14 billion. And we'll keep growing. I mean there's towns where there's more NDIS
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  providers than patients. And so we're seeing it. And just in the news this week the CFMEU was seen
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  to have ripped off the Australian taxpayers 15 to $30 billion in fraud. They would just give them
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  money. This is the government we're dealing with. And so this is where a lot of the inflation is
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  stemming from. It's just unbelievable untapped money spending from a government that has no
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  understanding of the ROI. It's almost like they're trying to hurt the country. So many Australians
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  and you might be included in this. You'll feel it in your mortgages, you'll feel it in your rent, and
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  you'll feel it in your every expenses. So what do you do about it? Well, the first part of
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  transformation is understanding and awareness. Now you're aware of it. What you can do is make sure
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  your debt levels are steady and falling, and you're prepared for what happens when the rates
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  go up. And also make sure you're earning good money. Meaning, if you've just got one job, get a
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  side hustle, you're going to be working more. Just get way ahead and be prepared for what can happen.
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  And of course, keep skilling up. Because with AI coming, you don't want to be in a position where
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  you lose your job and can't get another job, or you can't start a business, or you can't innovate
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  and pivot, um, and continue to earn money. Right? So make sure manage your debts, make sure you're
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  increasing your income and diversifying your income. And of course, as I've said so many times
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  on the channel, increase your assets. So you've got backup, right? Not just in your home. You live on
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  top of money. You haven't realised I'm talking about diversifying your assets into other things
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  that produce more income. It could be a small business. It could be shares. It's something that
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  produces income, right? So I'd love to know. Comment below. Do you think the RBA got it wrong? Yes or no?
• 13:56
  Was it inevitable? And of course hit the subscribe button if you're getting value from this channel.
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  Thanks so much for the comments you leave here. I believe you're all getting value from these. I try
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  and give a no BS approach to what's happening in the Australian economy, the world economy, and how
• 14:08
  it actually impacts your own finances and how you can get stay in front of the game right by
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  awareness. Putting some things in place and being ready for the ridiculous stuff that the
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  government does and will continue to do. So. I hope you've enjoyed this. See in the comments and see
• 14:22
  you in the next episode. Thanks for listening to. Money Grows on Trees. If you enjoyed the episode,
• 14:26
  leave a five star review on Apple Podcasts and Spotify, and subscribe to us on YouTube so you
• 14:31
  never miss an episode. And if you're serious about building wealth, make sure to check out the links
• 14:35
  in the show notes and follow me on all social media platforms at Lloyd James Ross for more. See
• 14:42
  you in the next episode.