Inflation? Low Interest Rates? How These Economic Times Effect Your Business


 

What is Inflation?

In Australia, the main measure of inflation is the consumer price index (CPI). This measures the rate of change in the average price of a basket of selected goods and services over time. While the CPI can move up or down, a negative inflation rate is referred to as deflation.

In 2021 the Australian CPI rate is expected to be 1.34% compared to a historically low 0.74% in 2020.

What does this change mean for businesses? A rising CPI shows our economy is recovering, albeit very, very slowly. A rise in CPI poses a greater squeeze on household spending, with more people out of work and prices of goods still increasing coupled with unemployment still high sitting at an average of 8.2%.

Of course, this is not good news as consumer spending makes up 60 per cent of total economic activity, so a contraction in spending generally results in a contraction in the economy.

Introducing historically low interest rates

To counter this reduce in spending the Reserve Bank of Australia cut the cash rates to rock bottom levels of just 0.1%, quoted saying they will keep the cash rate unchanged for up to three years.

Spurring a record-level of first homebuyers to take the plunge. For homeowners this can mean more cash in your back pocket as well, if your lender is there to pass along those rates. For your business low interest rates can make it much more beneficial for you to take out new loans to invest in the expansion of your business. Locking in a low rate means your loan will cost less in the long run.

You may also be able to refinance any existing loans during this period of sustained low interest rates helping stabilise your cashflow and reduce your debt owing in the long run. 

From start-ups to well established corporations we’ve got you covered to setup or refine the strategies that need, get in touch with one of our business advisory experts today.

Email: advisor@locmansadvisors.com

Ph: (03) 8393 1450