Wednesday, October 25, 2006

Inflation and CPI

CPI rose 0.9% in the September quarter 2006 compared with 1.6% in the June quarter.

CPI rose 3.9% through the year to September quarter 2006.

Contributing most to the increase this quarter were

  • fruit (+20.5%),
  • property rates and charges (+5.6%),
  • water and sewerage (+4.7%),
  • other household supplies (+2.9%),
  • insurance services (+2.2%),
  • electricity (+2.1%),
  • tobacco (+1.4%),
  • domestic holiday travel and accommodation (+1.2%).
  • rents (+1.0%), and
  • motor vehicles (+0.8%)

The most significant offsetting price falls were

  • vegetables (-5.3%),
  • pharmaceuticals (-5.0%),
  • automotive fuel (-1.1%) and
  • tertiary education (-2.2%).

These figures almost guarantee that there will be another interest rate rise. The problem is that the fruit has gone up due to the drought and oil prices, and property costs have gone up due to interest rate rises. Increasing interest rates will not fix the drought. Increasing interest rates will only further put pressure on house affordability.

Consumers discretionary stocks are going to take a beating on the market in the next few weeks and may offer some value when this has taken place. Already today a number of consumer discretionary stocks are down.

Remember the time to b uy most shares is when everyone thinks they are doomed. This might be the case in some instances but clever analysis can usually find those companies that will withstand the downturn in cycle and will rebound for huge profits when the trading environment improves.

Good Luck

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