Surplus hides government role in inflation

Fund manager Perpetual’s head of investment strategy Mathew Sherwood has warned that the commodity price boom and low unemployment levels were disguising soaring government spending.

In an article in the Financial Review writer Tom Richardson outlines Sherwood’s view which says in part “Governments have been great at shifting the blame for inflation onto central banks who were very late to tighten in 2022” and “Governments themselves are complicit in the inflation surge, as they’ve been running recession-type deficits at a time when unemployment is close to 50-year lows.”

The Australian share market as measured by the S&P/SX 200 gained 9.7 per cent in 2022-23 and the accumulation index which includes dividends reinvested rose 14.5 per cent and above the decade average of 6.6 per cent. In the US the S&P 500 index closed up 16 per cent and the tech heavy Nasdaq 100 was up around 23 per cent.

Local balanced superannuation funds are expected to gain between eight and nine per cent.

A few snippets from the past week include:

* The latest figures suggest growing personal and company tax receipts will take the budget surplus to around $19 billion. Let’s hope the government hangs onto most of that.

* Construction industry superannuation fund Cbus has written down some of their commercial property holdings by as much as ten per cent. Cbus is still expecting to return higher than 8 per cent for the financial year.

* The latest figures from the Australian Bureau of Statistics show the net worth of households increased by nearly $300 billion in the first three months of this year and now has households regaining most of the losses inflicted by high interest rates.

* Retailer Harvey Norman has warned shareholders the company was on track for a significant fall in earnings.

* Even law firms are feeling the pinch with reports leading firms are slowing partner growth and preparing for an economic slowdown.

* Shares in Collins Foods the KFC operator jumped 18 per cent after the company revealed a profit that was higher than market expectations. Over the past two years KFC has lifted their prices in an effort to combat inflation.

* According to new forecasts south-east Queensland will have the highest building cost inflation over the next four years with tender price growth jumping over 10 per cent this year.

* BHP and Anglo American have warned that Queensland’s coal royalty hike will lower the state’s ability to attract new mining investment.

* One way to increase productivity would be to have more processing and upscaling the value of our mineral riches onshore.

* July 1 will see compulsory superannuation contributions rise from 10.5 per cent to 11 per cent.

* Some headlines from last week were, “Labor prepays $1.8b in disaster funding from fatter surplus”, “Macquarie eyes 15 times return on sale of US ports”, “Namoi Cotton loses chief executive, fires up strategic review”, “Ramsay Health Care has M@A appeal; CSL still a value play”, “Stale estimates mean earnings season might be full of surprises and shocks”, “Pact signs upgraded Aldi packaging deal”, “US recession fears ease on strong data”, “IR bill needs substantial, not rhetorical, changes”, “Surging ACT rents undercut Greens push”, “Inverted yield curve not a harbinger of doom”, “Worker shortage behind higher milk prices: Bega”, “Energy minister should look at Sweden’s transition backflip” and “Farm workers go on strike for CPI pay rises”.

There will be no online charts this week.

Cheers Charlie.