Rates, Inflation and Staying the Course

We all know there is a lot going on in the World right now, particularly with conflict in the Middle East, and closer to home the Reserve Bank of Australia (RBA) raising the cash rate by 0.25% to 4.1% last week. These events have reminded us that we operate in an inter-connected world and events quite far from us can have an impact back home.

Why are interest rates going up? 

Put simply; inflation.  

The RBA tries to maintain the rate of inflation at 2% – 3%, and while cost of living pressures were high before the Iran-US conflict, the closure of the Strait of Hormuz has created a major oil supply shock, with up to 20% of global oil supply affected. This event has increased the price of oil to over $100 a barrel.  

High oil prices have a wide-ranging impact in our economy, primarily with the price of petrol, but also impacting other sectors. The high price of oil alone could derail the RBA’s inflation plan, adding up to 1.2% to the inflation rate, pushing it close to 5% on an annualised basis. 

In response, the RBA raised interest rates to cool the economy and hopefully get inflation back towards target. 

What does this mean for me? 

At Hewison Private Wealth, your financial strategy is not built on predictions about any single conflict or event. It is constructed with the expectation that there will always be something in the news, and we need to take a longer-term approach. 

Key features of our recommended strategies are designed for exactly these periods: 

• Diversification across asset classes
• A focus on income producing assets
• Disciplined portfolio rebalancing
• A long-term perspective that prioritises your objectives over the next 5, 10 and 20 years, not the next 5, 10 or 20 days 

Staying calm in a noisy world 

In periods like this, the most damaging decisions are often emotional ones: selling long-term assets into temporary weakness or chasing investments out of fear of missing out. Both behaviours tend to destroy value over time. While we can’t control global events, we can control how we respond to them.  

At Hewison Private Wealth we remain calm, disciplined and firmly focused on your long-term goals. 

If recent developments have raised questions or concerns for you, we encourage you to reach out and speak with your Adviser – we are here to help and guide you through these uncertain times. Start a Conversation