1 00:00:00,000 --> 00:00:06,239 Everyone thinks the worst is over. That the RBA is done, rates are going to stabilise, maybe even drop. 2 00:00:06,239 --> 00:00:11,799 But they're wrong. And if you believe them. If you think your mortgage is safe, if you think property 3 00:00:11,800 --> 00:00:16,640 prices are going to just keep climbing forever, if you think the cost of living is going to ease, 4 00:00:16,760 --> 00:00:22,879 then you're about to get blindsided. The truth is, inflation isn't dead. It's sitting at 3.8% per 5 00:00:22,879 --> 00:00:27,800 annum, well above the RBA's inflation target. And the data that's coming in over the next few 6 00:00:27,800 --> 00:00:33,800 months is going to force them to do the one thing that will rattle every single Australian 7 00:00:33,800 --> 00:00:39,159 homeowner. They're going to raise rates again, not hold not cut rates. And I've been saying this on 8 00:00:39,160 --> 00:00:43,240 the show for a long time, and it's actually come true because that's what they recently did. So I'm 9 00:00:43,240 --> 00:00:47,320 going to show you exactly how it's about to happen. The inflation data. They're looking at, the 10 00:00:47,320 --> 00:00:52,440 pressure they're under and what this means for your mortgage, your property value and the cost of 11 00:00:52,440 --> 00:00:57,080 living for you. Right now I'm Lloyd James Ross, seven figure investor and entrepreneur, and I've 12 00:00:57,080 --> 00:01:02,000 helped thousands of business owners and professionals turn financial stress into success. 13 00:01:02,000 --> 00:01:07,080 If you're stuck in old money habits, overwhelmed by investing, or unsure where to start, this is for 14 00:01:07,080 --> 00:01:12,200 you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve 15 00:01:12,200 --> 00:01:17,839 financial freedom. It's time to make your money work for you. So let's first discover what the RBA 16 00:01:17,880 --> 00:01:24,360 got wrong. The goal of the RBA is for stable employment and prices. That's objectively what 17 00:01:24,360 --> 00:01:30,519 they what they need to be doing. That's their focus. Okay. And what that includes is making sure 18 00:01:30,519 --> 00:01:35,400 the inflation target doesn't get out of control. Right. And making sure employment is stable. And 19 00:01:35,400 --> 00:01:41,400 this is what they want to focus on primarily. Right. Their inflation target isn't just arbitrary. 20 00:01:41,440 --> 00:01:46,480 It's known that it's around the 2 to 3% on average, but let's say roughly about two because 21 00:01:46,480 --> 00:01:51,560 when it's 2%, inflation helps the economy through spending. Right. That's where the economy is 22 00:01:51,560 --> 00:01:58,160 healthiest. But what inflation actually is. It's the price of goods going up over time. 23 00:01:58,249 --> 00:02:05,169 right, and erode your purchasing power. Ideally, you want stable inflation, not runaway prices. So not 24 00:02:05,209 --> 00:02:11,289 high inflation but steady 2% inflation because when that happens it encourages people to spend. 25 00:02:11,289 --> 00:02:15,889 But it also keeps prices fairly stable. So it doesn't erode a lot of purchasing power. And so in 26 00:02:15,889 --> 00:02:21,609 the 70s when it ran away it was a serious problem. And rates went back up to 17% to crush it. Okay. So 27 00:02:21,609 --> 00:02:26,769 the latest consumer price index, which stands for CPI Consumer Price index, which is a fancy word 28 00:02:26,770 --> 00:02:31,049 for inflation. The last figure and by the way how do they calculate that is they get a basket of 29 00:02:31,049 --> 00:02:37,329 goods whether it be fuel and food etc. rent. And they put them into a basket of average prices and 30 00:02:37,329 --> 00:02:42,089 they assess the price in one year against the next year. Does that make sense. And so that's 31 00:02:42,089 --> 00:02:48,769 where you can determine the percentage increase in prices of things. Okay. So 32 00:02:48,770 --> 00:02:55,449 Australia's inflation is now 3.8% annually clearly above the target. And rising not 33 00:02:55,449 --> 00:03:00,609 falling. Okay. Isn't that? Or do you feel like something's off? If inflation is still really high 34 00:03:00,649 --> 00:03:06,289 3.8%, it's almost double what they're aiming for. Shouldn't the RBA have acted earlier? So that's 35 00:03:06,289 --> 00:03:10,769 what's caused them to hike. So here's what happened recently. They had to hike interest rates 36 00:03:10,809 --> 00:03:16,329 last Tuesday because of this runaway inflation. So they raised the official cash rate the reserve 37 00:03:16,369 --> 00:03:23,369 Bank rate by 0.25%, taking it to 3.85%. Why? Because they had strong inflation 38 00:03:23,369 --> 00:03:28,249 data come out, particularly in the second half of 2025, and a tighter labour market, which means 39 00:03:28,249 --> 00:03:32,489 there was actually pretty good employment. Employment is rising, people are getting jobs. And 40 00:03:32,490 --> 00:03:38,289 so with that in mind that is stable. And then they would want to look to stabilise prices. So what 41 00:03:38,289 --> 00:03:42,769 has happened since then is as they increase the rate of the reserve rate, the major banks, 42 00:03:42,769 --> 00:03:48,209 Commonwealth Bank, Westpac Bank said they've now incrementally increased their retail rate is what 43 00:03:48,209 --> 00:03:53,609 they lend money out at. So it's hurt borrowing capacity. And of course it would make it much 44 00:03:53,610 --> 00:03:58,259 harder for those who already owe hundreds of thousands, millions of dollars to start paying 45 00:03:58,259 --> 00:04:04,979 back their mortgage. All right. So here's the slice. Most commentators are not talking about what this 46 00:04:05,020 --> 00:04:11,699 actually means for real people, right? Everyday people over the next 12 and 24 months. Okay, 47 00:04:11,740 --> 00:04:17,018 so just to give you a bit of a we just go back and revisit what's happened in the past with 48 00:04:17,100 --> 00:04:22,579 inflation, with rates and with property. Over the past, say, decade, property prices have climbed 49 00:04:22,579 --> 00:04:28,420 dramatically. I would say some capitals have had property gains of over 100% in the last ten years, 50 00:04:28,420 --> 00:04:34,140 certainly even in the last five. Right. It's been a very bullish property cycle. Okay. And why interest 51 00:04:34,140 --> 00:04:39,739 rates matter to that is because higher rates don't just mean more expensive loans. They mean 52 00:04:39,739 --> 00:04:45,179 lower demand. So lower price growth in housing. And if it gets pushed far enough we start to see real 53 00:04:45,179 --> 00:04:49,419 estate declines. And that's not such a bad thing. But it does hurt those with mortgages because 54 00:04:49,420 --> 00:04:54,299 they will have to foreclose on mortgages if they can't pay the repayment over a three month period. 55 00:04:54,299 --> 00:04:57,980 So you start to see these things in banks called bad debts start to go up because people start to 56 00:04:57,980 --> 00:05:03,219 not be able to afford their mortgages. Now, at the moment they can because rates aren't climbing too 57 00:05:03,219 --> 00:05:08,299 fast for them to hurt them instantly. It'll be like a slow burn over time, and what you'll start 58 00:05:08,299 --> 00:05:13,059 to see is auction rates will start to fall. The days on market will start to increase, and you'll 59 00:05:13,059 --> 00:05:18,099 start to see a slowdown in the real estate market because people just cannot afford to borrow 60 00:05:18,099 --> 00:05:22,539 anymore, because rates are too high and the price of property is way too high, and or they are 61 00:05:22,540 --> 00:05:25,859 defaulting and they're having to sell. And when this happens, you're going to see a price 62 00:05:25,859 --> 00:05:31,019 adjustment in real estate, which we need to have. However, it can cause a lot of problems for 63 00:05:31,140 --> 00:05:35,738 everyday people. And I believe this is what's going to happen because if they don't increase 64 00:05:35,739 --> 00:05:40,298 rates, then we're going to see price increases of everyday goods to explode. And we're going to have 65 00:05:40,299 --> 00:05:44,620 a real inflation problem. Right? We don't want to see you walking down the street with a 66 00:05:44,659 --> 00:05:49,379 wheelbarrow of $50 bills, just to buy a bottle of milk. That's what can happen. That's what happened 67 00:05:49,379 --> 00:05:53,099 in Wyoming, in Germany. And so we have to make sure that they're stabilising prices. What that means 68 00:05:53,100 --> 00:05:56,939 is if you own a mortgage right now. Buckle up, because I think it's going to get worse. Okay. And 69 00:05:56,940 --> 00:06:02,019 so you're going to see a lot of major cities, real estate markets start to slow down a little bit. 70 00:06:02,019 --> 00:06:06,579 And if you add in stuff like immigration flowing etc., that's going to increase. All right. Just 71 00:06:06,579 --> 00:06:11,139 quickly, if you're ready to take control of your finances but feel stuck on where to start. I have 72 00:06:11,140 --> 00:06:16,139 a solution. My book, Money Bias Happiness simplifies Investing and Wealth Building with 73 00:06:16,140 --> 00:06:20,980 practical steps to help you achieve financial peace. Get your copy via the link in the show 74 00:06:20,980 --> 00:06:25,900 notes and let's get your money working for you. Now back to the episode. If higher rates squeeze 75 00:06:25,900 --> 00:06:31,299 buyers and slow prices in real estate, do you think early RBA cuts were still justified? Do you? 76 00:06:31,340 --> 00:06:35,619 I don't think they were. I think it exacerbated the problem and I believe they were just 77 00:06:35,660 --> 00:06:41,578 harbouring and helping and protecting real estate investment because in Australia everyone's a 78 00:06:41,579 --> 00:06:48,539 property addict. All right. So, uh, what has happened in the realm of inflation is housing inflation is 79 00:06:48,540 --> 00:06:53,070 5.5% food, 3.5% like the price of food is just going up and up and up. I've mentioned so many 80 00:06:53,070 --> 00:06:58,629 times on this show. The price of a maxi bond is $6.60. What the heck happened to that? That's like 81 00:06:58,630 --> 00:07:03,229 doubled in price in the last 5 or 6 years. So you're going to see this start to play out, I 82 00:07:03,230 --> 00:07:09,589 should say, in your regular everyday shopping, your rent and so forth. Now here's the challenge. 83 00:07:09,630 --> 00:07:15,229 Wages haven't grown at the same rate. That's the issue. So if you're getting wage inflation at the 84 00:07:15,230 --> 00:07:21,189 same rate, then it means we're probably even even keel, especially if you have a well-paid job. But 85 00:07:21,189 --> 00:07:26,029 if it hasn't, it means that things are just getting more expensive, right? So wage growth has 86 00:07:26,029 --> 00:07:30,589 lagged price increases in goods, meaning households have got less real income than just a 87 00:07:30,590 --> 00:07:35,269 year ago, three years ago, way less. In fact, I think it's Australia that leads the world, which is 88 00:07:35,269 --> 00:07:40,389 really sad in per capita GDP growth, meaning the country might be growing, but per capita per head 89 00:07:40,389 --> 00:07:44,549 per people here, we are not growing. In fact, we're going way backwards. And that's why it feels like 90 00:07:44,549 --> 00:07:49,230 you're a lot poorer. But also the fact of the matter is this if your wages are where they are 91 00:07:49,269 --> 00:07:54,949 now and inflation is going way up and it costs a lot more to do things than what's going to happen 92 00:07:54,949 --> 00:07:59,429 to is even if wages continue to go up, they're not going to change the tax brackets, which means 93 00:07:59,429 --> 00:08:03,230 you're going to pay more taxes and you're going to get progressively poorer from the price of 94 00:08:03,230 --> 00:08:07,229 things. And the fact that you're going to be in a higher tax bracket, okay. So inflation is not a 95 00:08:07,230 --> 00:08:13,590 good outcome for any of us. All right. So what as a result of that, what has happened in the data just 96 00:08:13,590 --> 00:08:17,549 recently is that household spending has started to fall. And that's why you're seeing stocks like 97 00:08:17,549 --> 00:08:24,309 JB Hi-Fi go from $120 a share down to 8070, back to where it belongs. Because, you know, 98 00:08:24,350 --> 00:08:28,589 people are just buying less things. It's starting to hurt, right? And you may have experienced this 99 00:08:28,589 --> 00:08:32,669 around a barbecue or a party at your friend's house. People are all talking about the cost of 100 00:08:32,670 --> 00:08:37,030 living. So it's actually starting to hurt people now. And equity can't take you forever. Like people 101 00:08:37,030 --> 00:08:40,749 are like, oh, sorry, I've got all this, like 600 K in equity. Well, every time you borrow home equity, 102 00:08:40,749 --> 00:08:45,509 it's a borrowing and you've got to pay 5 or 6% on that borrowing to then spend your money. So I 103 00:08:45,509 --> 00:08:49,589 think a lot of people maybe living on equity, maybe you've maxed out credit cards and we're at 104 00:08:49,590 --> 00:08:53,359 the end of it. And I think you're going to start to see now people really struggling, which is not 105 00:08:53,359 --> 00:08:57,919 good. Right. And it's just going to get worse because they have to increase rates. So going back 106 00:08:57,920 --> 00:09:02,479 to the wages, if your wages aren't keeping up with the rate of inflation growth, even if we're 107 00:09:02,479 --> 00:09:09,239 growing better as a country, you're not growing your wealth better. Right. So what comes next? Well, 108 00:09:09,280 --> 00:09:13,999 based on the data and based on government spending and based on the fact that the RBA got 109 00:09:13,999 --> 00:09:17,719 it wrong by reducing rates, which I mentioned on this show, they shouldn't do. If you go back far 110 00:09:17,719 --> 00:09:20,679 enough and listen to the episode, you'll see me going, I don't know why they did that. That was 111 00:09:20,679 --> 00:09:24,599 really stupid. Obviously we're going to see more inflation now. And, you know, a few months later, 112 00:09:24,599 --> 00:09:28,120 while I hear it is don't take a genius to work it out. They should have put it up a lot more. They 113 00:09:28,120 --> 00:09:31,200 should have kept it at four and a half. They should have kept it not reduced it. They should 114 00:09:31,200 --> 00:09:34,919 have just let the market build around the rate instead of trying to follow the rate all the time. 115 00:09:34,960 --> 00:09:38,519 It's typical of this government and the people in power. They're just trying to appease everybody 116 00:09:38,520 --> 00:09:43,960 and typically property investors and property owners. Right. Which is a lot of people. So are more 117 00:09:43,960 --> 00:09:48,880 rate hikes possible? I would say absolutely. Almost with certainty. It's going to happen because you 118 00:09:48,880 --> 00:09:52,839 see how they're like, oh, we'll do 0.25. They're just delaying it. Like they should just whack it 119 00:09:52,840 --> 00:09:58,279 up a whole percentage point above and let the market swallow it. Um, instead of just ripping this 120 00:09:58,280 --> 00:10:02,439 bandit off so slowly. Right. So the RBA officials have repeated that inflation pressure is 121 00:10:02,439 --> 00:10:07,400 obviously going to remain high. And they say they're not going to hesitate to act. Let's hope 122 00:10:07,400 --> 00:10:12,080 that they act. So I would anticipate that we're going to see a 0.25% rise again and potentially 123 00:10:12,080 --> 00:10:17,520 another one this year. There could even be three. All right. And you're going to see this passed on 124 00:10:17,520 --> 00:10:21,479 to the banks. I know that CBA the other day just passed the rate rise straight onto its customers. 125 00:10:21,520 --> 00:10:25,840 Okay. Um, how this will affect the property market? Well, it will certainly reduce the growth. It'll 126 00:10:25,840 --> 00:10:32,279 slow by activity and that's a good thing. But we'll also do is put people under more stress in 127 00:10:32,320 --> 00:10:36,599 their mortgage repayments. And it's going to make it harder just to, you know, get by. Because all of 128 00:10:36,599 --> 00:10:40,359 a sudden if you add unemployment there for whatever, like let's say for example, I know it's a 129 00:10:40,359 --> 00:10:47,239 long tail risk, but let's say the onset of AI that's coming through, let us say that AI 130 00:10:47,280 --> 00:10:53,200 takes a lot of jobs, and all of a sudden we have a spike in unemployment, right? Then we're going to 131 00:10:53,200 --> 00:10:57,119 have a serious problem, because not only do we have unemployment, but we've got rising rates. And 132 00:10:57,120 --> 00:11:02,599 that's going to be what could possibly cause a serious financial correction and some challenges 133 00:11:02,599 --> 00:11:06,759 for a lot of people. And that's a real possibility. We're seeing how fast it's overtaking software. 134 00:11:06,759 --> 00:11:11,519 We're seeing, you know how I mean, it may take longer than we think, but I think it's coming. 135 00:11:11,559 --> 00:11:17,358 Right? So given what we know about the inflation target and how it's right, it's way above by 136 00:11:17,359 --> 00:11:21,319 double and rates are climbing by the facts and the data that they just increase rates. And they 137 00:11:21,319 --> 00:11:26,560 will again I would anticipate and the impact on people's wallets. Do you think the RBA should have 138 00:11:26,680 --> 00:11:31,400 done something different earlier. Do you think they should have drop rates? I don't think so. I 139 00:11:31,400 --> 00:11:35,840 think they got it wrong and I think they've let down the Australian people more than once. They 140 00:11:35,840 --> 00:11:38,879 let us down when they told us rates are going to stay really low and then they smashed them up 141 00:11:39,080 --> 00:11:43,960 after Covid. They also let us down by dropping into 2.1% during Covid. And so we've been let down 142 00:11:44,000 --> 00:11:48,769 time and time again by the RBA. So you can't even take on board what they say with any level of 143 00:11:48,769 --> 00:11:54,969 trust and certainty, and that's a real challenge. So right now, inflation is higher than the RBA 144 00:11:55,009 --> 00:12:00,289 wants by a factor of two is double. It's 100% higher than they want. The RBA has raised rates by 145 00:12:00,289 --> 00:12:05,289 up to 3.85% to fight it. Right. And it's likely they're going to do it again. The rate rise will 146 00:12:05,289 --> 00:12:09,729 slow the property growth which is great, but it'll squeeze households budgets, which is not so great. 147 00:12:09,770 --> 00:12:14,090 Who knows how far it can go. What if it goes to five, six, seven, 8%? We just don't know, right? 148 00:12:14,090 --> 00:12:18,129 Because the government is spending so much money with things like the NDIS that's blown up to $50 149 00:12:18,130 --> 00:12:22,569 billion from $14 billion. And we'll keep growing. I mean there's towns where there's more NDIS 150 00:12:22,609 --> 00:12:29,609 providers than patients. And so we're seeing it. And just in the news this week the CFMEU was seen 151 00:12:29,609 --> 00:12:35,129 to have ripped off the Australian taxpayers 15 to $30 billion in fraud. They would just give them 152 00:12:35,130 --> 00:12:39,529 money. This is the government we're dealing with. And so this is where a lot of the inflation is 153 00:12:39,530 --> 00:12:45,649 stemming from. It's just unbelievable untapped money spending from a government that has no 154 00:12:45,650 --> 00:12:50,728 understanding of the ROI. It's almost like they're trying to hurt the country. So many Australians 155 00:12:50,729 --> 00:12:54,289 and you might be included in this. You'll feel it in your mortgages, you'll feel it in your rent, and 156 00:12:54,289 --> 00:12:59,569 you'll feel it in your every expenses. So what do you do about it? Well, the first part of 157 00:12:59,570 --> 00:13:04,609 transformation is understanding and awareness. Now you're aware of it. What you can do is make sure 158 00:13:04,609 --> 00:13:09,529 your debt levels are steady and falling, and you're prepared for what happens when the rates 159 00:13:09,569 --> 00:13:15,009 go up. And also make sure you're earning good money. Meaning, if you've just got one job, get a 160 00:13:15,009 --> 00:13:20,369 side hustle, you're going to be working more. Just get way ahead and be prepared for what can happen. 161 00:13:20,369 --> 00:13:24,169 And of course, keep skilling up. Because with AI coming, you don't want to be in a position where 162 00:13:24,169 --> 00:13:27,969 you lose your job and can't get another job, or you can't start a business, or you can't innovate 163 00:13:27,969 --> 00:13:33,969 and pivot, um, and continue to earn money. Right? So make sure manage your debts, make sure you're 164 00:13:33,969 --> 00:13:37,409 increasing your income and diversifying your income. And of course, as I've said so many times 165 00:13:37,409 --> 00:13:42,968 on the channel, increase your assets. So you've got backup, right? Not just in your home. You live on 166 00:13:42,969 --> 00:13:47,259 top of money. You haven't realised I'm talking about diversifying your assets into other things 167 00:13:47,260 --> 00:13:51,419 that produce more income. It could be a small business. It could be shares. It's something that 168 00:13:51,420 --> 00:13:56,579 produces income, right? So I'd love to know. Comment below. Do you think the RBA got it wrong? Yes or no? 169 00:13:56,619 --> 00:14:00,499 Was it inevitable? And of course hit the subscribe button if you're getting value from this channel. 170 00:14:00,539 --> 00:14:04,459 Thanks so much for the comments you leave here. I believe you're all getting value from these. I try 171 00:14:04,460 --> 00:14:08,299 and give a no BS approach to what's happening in the Australian economy, the world economy, and how 172 00:14:08,299 --> 00:14:13,580 it actually impacts your own finances and how you can get stay in front of the game right by 173 00:14:13,580 --> 00:14:17,460 awareness. Putting some things in place and being ready for the ridiculous stuff that the 174 00:14:17,460 --> 00:14:22,178 government does and will continue to do. So. I hope you've enjoyed this. See in the comments and see 175 00:14:22,179 --> 00:14:26,179 you in the next episode. Thanks for listening to. Money Grows on Trees. If you enjoyed the episode, 176 00:14:26,219 --> 00:14:31,579 leave a five star review on Apple Podcasts and Spotify, and subscribe to us on YouTube so you 177 00:14:31,580 --> 00:14:35,779 never miss an episode. And if you're serious about building wealth, make sure to check out the links 178 00:14:35,779 --> 00:14:42,099 in the show notes and follow me on all social media platforms at Lloyd James Ross for more. See 179 00:14:42,100 --> 00:14:43,339 you in the next episode.