June Economic update

Rising inflationary pressures were the main driver behind a 0.5 percentage point  increase in Australian interest rates in June, as supply chain disruptions and geopolitical tensions continue to cause volatility in financial markets.

Inflation, which hit 5.1 percent in the March quarter, along with higher energy and petrol prices were contributing factors for two consecutive Australian interest rate rises along. There was also further tightening in the US where the key rate went up by 0.75 percent in June, the single biggest increase there in 28 years.

The Reserve Bank of Australia pushed the official cash rate to 0.85 percent and said further tightening was likely in coming months after raising interest rates by the single largest amount in 22 years and predicting inflation could go as high as 7 percent.

Meanwhile, a change in the federal government in the May election had minimal impact on the S&P/ASX 200. 

Economic indicators

Better-than-expected economic growth data and strong employment figures also featured in the past month.

Australian gross domestic product grew 0.8 percent in the March quarter, driven by household and government spending. The annual growth rate of 3.3 percent not only defied the impact of the devastating floods across NSW and Queensland, but also shrugged off the impact of the Omicron variant outbreak that affected many businesses.

The Australian Bureau of Statistics said spending on discretionary goods and services rose by 4.3 percent in the first three months of the year and is now sitting above pre-pandemic levels.

Australia’s May unemployment rate remained at a 48-year low of 3.9 percent, the lowest rate since 1974, with full-time employment increasing by 60,600.

Diversification is key

Rising inflation has undermined global stock markets and many investors would have seen their super balances decline as the threat of inflation and higher interest rates have a negative impact on equities. However, the temporary depreciation of the Australian dollar during the month would have provided some cushioning.

While it’s a nervous time for super fund members, it’s important to remember that Active Super deploys multiple strategies to manage the long-term performance of your investments.

Diversification is essential to riding out market cycles and one of the big advantages of managed investments like superannuation. 

Active Super also invests in other asset classes like property, bonds, private equity, alternatives and cash. When one asset class performs poorly, others might perform better, thereby reducing the impact of volatility on your portfolio as a whole.