Insights

Why inflation and interest rate hikes are NOT a worry for ASX shares

Well, not yet, anyway. Most Australian economists believe we’re 2 years away from rate rises.
The post Why inflation and interest rate hikes are NOT a worry for ASX shares appeared first on The Motley Fool Australia. –

The latest inflation figures in the US shocked everyone with a 6.2% rise in its consumer price index, the highest in 31 years.

Post-pandemic activity and skyrocketing energy costs are just two of many factors that are fanning the flames.

With share markets at historically high valuations, it’s well-documented how persistent inflation — and resulting interest rate hikes — could put stocks at risk of a tumble. Or at least a stumble.

And ASX shares usually follow the lead of the larger American markets.

But new research shows experts think this might be the one time when Australia will diverge from what the US is doing.

Why is Australia different?

The Economic Society of Australia and The Conversation surveyed 55 local economists this week.

A great majority, 32 of them, rejected the notion that current conditions in Australia present “a serious risk of prolonged above-target inflation”.

“It is hard to see Australian economic policy settings being the cause of ‘protracted inflation’,” independent economist Saul Eslake said.

The big reason is wage growth, or the lack of it.

The Reserve Bank of Australia has consistently stated it would not raise rates until workers had more money in their pockets.

And there is just no sign of that happening anytime soon.

“While there has been talk of the need to increase wage growth, over the past 5 years governments at all levels have generally worked to suppress wage growth, especially through limiting wage increases to their own employees,” Curtin University distinguished emeritus Harry Bloch said.

US wages rose 4.6% for the year ending September. 

In Australia, it was just 1.7% for the year to June, although an updated September quarter figure will be revealed this week.

So when will interest rates rise?

The financial markets, through change in bond yields, have signalled in recent months that it expects interest rate hikes to start next year.

But only 15 of the 52 economists believe that would happen.

On the other end, Reserve Bank governor Philip Lowe publicly stated this month that the rate would not rise until 2024.

And the economists don’t believe him either. Only 10 agreed with Lowe.

So the majority predict that a rate rise would arrive in 2 years’ time, in 2023.

“A number of aspects of current inflationary pressures are expected to be temporary due to COVID disruptions. Once these work through the system, we may well return to lower trends,” independent economist Nicki Hutley said.

“But there is a high degree of uncertainty particularly given unprecedented monetary policy measures.”

The post Why inflation and interest rate hikes are NOT a worry for ASX shares appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More reading

ASX 200 (ASX:XJO) midday update: Telstra investor day, tech and materials shares fall

The Nitro (ASX:NTO) share price is climbing while tech shares are falling. Here’s why

Why are Flight Centre (ASX:FLT) shares still being shorted in November?

Getting paid in cryptocurrency will be the norm, says expert

Australasian Gold (ASX:A8G) share price rockets 31% on lithium discovery

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!