Oil, rates and a week of competing signals

Tension in the Middle East has ratcheted up again this week. Oil prices have jumped as a result, up more than ten percent over the week by some measures. Higher oil prices flow fairly directly into inflation. Inflation is the main thing standing between rates now and where they go next.

Oil prices, interest rates: how the two are connected right now

Three earlier rate rises are still working their way through the system. On the data available, the stronger case remains that the Reserve Bank holds still for a while yet. Labour force figures due out later this week will feed into that picture. If tension keeps building and oil keeps climbing, that case gets harder to make. The next move in rates, if there is one, is more likely up than down. None of this is a prediction, it is simply where the pressure sits right now.

Consumer confidence actually improved this month, helped along by petrol prices that had been easing after an earlier spike. That survey was taken before oil moved again, so treat the improvement as a snapshot rather than a settled trend.

Property and rents are telling two different stories

Closer to home, the property downturn has kept spreading. Prices are now falling in every major capital except Perth, and the pace has picked up rather than settled down. At the same time, rents have jumped, Sydney in particular. Landlords are adjusting ahead of next year’s changes to investment property tax rules. The jump is more than was flagged when those changes were first announced.

Five things that matter this week, and why they matter to you

Oil prices, interest rates: what ties this week’s signals together

Each of the five stories above feeds back into the same question. Oil prices, interest rates: where do they go from here. Oil is the wildcard. It could turn a stable hold into renewed pressure for a rise if the Middle East situation keeps escalating. Jobs data due this week adds another piece to that puzzle. Consumer confidence has improved, but on a survey taken before oil moved again, so the improvement may not last.

Property and rents tell a related but separate story. The downturn in prices is broadening well beyond Sydney and Melbourne. Rents in Sydney have jumped faster than expected, against a tax reform that will take years to fully play out. None of these threads point to a single certain outcome. That is precisely why they are worth watching together rather than in isolation.

If anything in this update has raised a question about your own situation, please get in touch. That is exactly what we are here for.