Better buy now

There is a general agreement that house prices are going up dramatically, unemployment levels are coming down and casual workers are being offered permanent part-time positions as the new form of labour market flexibility.

Now is the time to buy better and lock in pre-inflationary prices to maintain a competitive advantage in the emerging recovery and renewal markets.

Consumers are again accepting interest rate rises will be offset by increased property values. The central bankers around the world are arguing that a modest level of inflation will help them cope with the red ink pools of sovereign debt. The public is starting to believe that the after shocks of the GFC are over and we can invest in the next round of speculative investments, despite Glenn Stevens efforts to jump all over these expectations.

Gary Morgan says “Consumer Confidence has risen strongly (129.5, up 4.8 points in a week) to its highest point since mid-January. The strong rise in Consumer Confidence was led by increasing confidence among Australians about their family’s financial situations with 48% (up 6%) of Australians expecting their family to be ‘better off financially’ in a year’s time and 31% (up 2%) of Australians saying their family is ‘better off financially’ than a year ago.

“This week’s decision by the Reserve Bank to raise interest rates 0.25% to 4% (the RBA’s fourth rise in its last five meetings) is a firm sign that the RBA believes the Australian economy is on a sustainable growth path — next week’s Consumer Confidence Rating will clearly show whether the Australian public shares the RBA’s optimism about the state of the Australian economy going forwards.”

Surveys of business confidence indicate that expectations for market expansion for this year do not reflect the high levels of consumer confidence. Lending for growth is very limited and predictions of counter-inflationary interest rate rises in an election year are adding to concerns about taking on new projects and new staff.

Under these conditions, smart companies will need to lock in favourable supply agreements as the global economy proves that it has ceased taking on debt and is beginning to stabilise its recovery projects by closing down the treasury printing press.

Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund, argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging consumers and small business to spend now rather than later when prices go up.

While it may suit the bankers to apply inflationary mechanisms to write down the extraordinary levels of post-stimulus debt and call into question the rush of funds into the housing sector, for most small and medium enterprises costs cannot be readily converted into price increases. The next few months must be used to consolidate and extend quality products and services through longer term supply contracts and reinforce sound customer relationships.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking sonsultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
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