Essence Of The Property Outlook

There are huge advantages to recognising this all-important point...

Strong economic growth will continue to be supported by POSITIVE entrenched low inflation, which allows for continued, lower than ever before,central bank set interest rate levels!

Low inflation is a positive. Not a concern in the modern economy. Yet, so much of today’s economic and financial market discussion around the world is all about the “problem” of low inflation. Firstly, it is viewed as a problem, because people do not understand why it is happening. Secondly, it is here to stay because of globally competitive pricing pressures in every field.

Just this week the US Federal Reserve met for its usual interest rate setting meeting. Rates were, as expected, kept at the quite silly low level of 1.25%. They are likely to be raised to 1.50% in December though. This is an economy that is growing strongly, corporate profits are skyrocketing and have full employment.

So how is this possible, that rates were kept so low? Are still this low?

The answer is, inflation around the world is stubbornly staying low despite broad-based economic acceleration. In fact, Federal Reserve Chairwoman Janet Yellen, even admitted that she found what she called the under-shooting of inflation a “mystery”.

A “mystery”? We have been forecasting ahead of time and explaining why inflation would stay low alongside strong growth since 2008. How can this still be a “mystery” to the Federal Reserve? Well, it is just another example of how stuck these people are in the past form of economic thought. Which, by the way, didn’t get things right in the previous century. Let alone this new and changed century.

Low inflation means low official interest rates regardless of how strong the economic growth is. That is pretty exciting when you think about it. Instantly, we can see how we may well, right now, be in the midst of the longest lasting economic expansion in the history of the world.

High corporate profits supported by a strong economy, combined with low cost of borrowing supporting fresh investment, is a simply fantastic economic outlook!

Can there be a sweeter economic outlook for property values? Which is why property all around the world is strong, and in many places skyrocketing.

When we are considering the Australian market, this must be done within the global context. And the global economic outlook remains extremely favourable, well over any time horizon you might choose.

While interest rates around the world will edge gently higher, there will be no interest rate shock by any means. Strong prosperity at relentlessly low-interest rate levels points to much stronger property prices.

Record high prices are just the bottom of the future range.

Clifford Bennett