By David Prattent

MarketWatch tore his gaze away his favourite wine catalogue, think, so much red, so little time.  But, more relevantly, he was thinking, yet another sale with more price reductions, why aren’t people buying and spending?  After all, his dear wife, Mrs MarketWatch, has heard the clarion call and her efforts to save the economy can only be described as admirable.  So why isn’t everyone doing their bit?

The first thing we need to understand is the importance of consumer expenditure to our economy.  In March 2019, it accounted for about 56% of Gross Domestic Product, or, put simply, 56% of the total value of all goods and services produced in Australia.  So its important, and when people don’t spend, our economy does not perform as well.

The rise of the internet as a shopping medium is often quoted as a reason for the decline of retail spending.  Yes, this is an important factor, but its not the only one.

Another key reason is inflation.  We keep hearing that inflation is low, although it has moved slightly upwards, but is still not at levels we have seen previously.  The problem with a single across the board number for inflation is that it really doesn’t exist in the real world.

Let’s just look at at the latest numbers for June.  For the nation (Perth numbers were lower) annual inflation was 1.6% for the last twelve months. But I am reliably informed by Mrs MarketWatch that prices are still going up so how do we reconcile this?  Well, within the overall number there are some significant increases such as food +2.4%, alcohol and tobacco +5.9%, education +2.8%.  What held the numbers back were communications -4.4% and furniture -0.4%.  So what you are experiencing as inflation depends entirely on your buying patterns.  Because of this the chances are that many of us are experiencing higher-than-average inflation.  Couple that with a wages environment which is flat, its probably not surprising that a lot of us don’t feel like spending.  Consumer confidence tumbled in July and we should not be surprised.

And if that is not enough, there is the issue of household debt which is just about the highest in the world and is growing.  That is at least giving some impetus to spending but, because debt needs servicing and incomes are flat, you can’t keep doing this for ever unless you start to eat up your savings.  That’s why the government wanted you to spend the recent tax rebate and its why many of you didn’t.

Last month, we touched on strategies for an uncertain world.  MarketWatch can’t offer you the answers but can point out the sort of issues and environments to increase awareness and inform your planning.  He also has a sinking feeling that these things are going to be with us for quite a while.

On the brighter side though, both the Kilkanoon Shiraz and the Patronus Shiraz from the Barossa have warmed the cockles of MarketWatch’s old heart.  If you can get some, enjoy it. The world is not all doom and gloom.

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