Investment expert warns prices ‘rollercoaster’ possible

Global inflation may fall back to target more quickly than expected in the near term but could then rebound higher again because of geopolitical fragmentation, the low-carbon transition and other supply shocks.

That’s the thinking of BlackRock global chief investment strategist Wei Li speaking at the Australian Financial Review’s Business Summit on Monday.

Ms Li said markets might be surprised by how quickly inflation gets back to target in the near term as “the simple mechanics of the pandemic unwind”.

“So it actually doesn’t take much for inflation to get to target and this compares with the view out there, that is the last mile is very sticky and it’s really hard to achieve.”

But she said markets might similarly be caught off-guard by how high inflation settles in the long run because of labour shortages, geopolitical fragmentation and the low-carbon transition.

“We also have the view that after inflation gets to target it could roller coaster rebound back higher than what markets are currently accepting because of the supply constraints,” she said.

Treasurer Jim Chalmers used his appearance at the event to outline four policy priority areas aimed at fuelling growth and driving dynamism in the domestic economy.

He warned the prospects for the Australian economy laid out in the 2023 intergenerational report should be viewed as a “warning sign”.

Real GDP is projected to grow by an average of 2.2 per cent per year over the next 40 years compared to 3.1 per cent over the past four decades.

The slower projected growth reflects weaker productivity gains and population growth trends, and reduced workforce participation as demographics skew older.

“We kind of get to decide collectively – not government on its own or business on its own – but collectively we get to decide whether we’re OK with those kinds of levels of growth,” he said on Monday.

“I think we can do better … and this decade is going to be the one that matters.”

Areas of policy reform flagged by the treasurer included streamlining the environmental approvals process and “sensible changes” to the Petroleum Resource Rent Tax.

“We understand and value the contribution mining and resources make to our national economy,” he said in his speech.

The government will also introduce financial sector regulatory initiatives modelled on a system in the UK aimed at “co-ordinating regulatory effort”.

As well, close to 500 “nuisance” tariffs will be scrapped in the new financial year in a bid to make it easier to do business and boost productivity.

At the same conference, Commonwealth Bank chief executive Matt Comyn took aim at tech giants such as Apple and Meta.

“One of the things I find extraordinary is the lack of scrutiny across some of the large tech companies that have large businesses in Australia,” he said.

Defending domestic industries from accusations of market concentration, the big bank leader said the gaze of regulators and policymakers should also be fixated on the global tech giants.

Mr Comyn said Apple, by way of example, paid an effective corporate tax rate of about four per cent compared to the 30 per cent paid by the bank.


Poppy Johnston
(Australian Associated Press)


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