Treasurer urges calm as markets gyrate

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

Treasurer Scott Morrison has again urged investors to remain calm in the face of volatile swings that have engulfed global equity markets this week.

The Australian stock market recouped some of the $85 billion of losses over the previous two days, standing just under one per cent higher in late trading on Wednesday after Wall Street managed a strong finish during its Tuesday session.

However, markets remain jittery – led by concerns the US Federal Reserve may need to quicken the pace of interest rate rises – and as witnessed by the Dow Jones index swinging between gains and losses in a 1000-point range overnight, after posting a record points tumble on Monday.

“Remain calm … there is a difference between what happens in the real economy and what happens in markets,” Mr Morrison told Sky News.

Shadow treasurer Chris Bowen also acknowledged concerns about the volatility of markets but urged a “sober, balanced and careful consideration” of their implications.

“Let’s take a medium-term view and not be too alarmist about very short-term movements,” he told reporters in Canberra.

Senior cabinet minister Josh Frydenberg insisted the fundamentals of the global and Australians economies remain strong.

“Here in Australia, we’re enjoying the 27th year of consecutive economic growth. It does auger well for the future,” he told Sky News.

Such market gyrations do risk denting confidence at a time of households already feeling the pinch from rising cost of living pressures and flat wage growth.

The surprisingly benign inflation results released last month may have had some households in Australia shaking their heads in disbelief, especially if they had just filled up their car.

However, a separate take on the cost of living suggests prices are not quite as subdued as the consumer price index suggests.

The Australian Bureau of Statistics released its quarterly cost of living indexes on Wednesday.

These indexes gauge how much after-tax incomes need to change to allow different types of households to purchase the same quantity of consumer goods in a given period.

The CPI rose 0.6 per cent in the December quarter for an annual rate of 1.9 per cent, surprising economists who had anticipated a stronger rise to better reflect a 10 per cent rise in petrol prices in the final three months of 2017.

However, the cost of living index for employees rose 0.7 per cent in the quarter and 2.0 per cent over the year, the strongest annual rise since mid-2014.

“Budgets are being stretched with the cost of living index for wage-earning households surpassing consumer prices. Not ideal when wages growth is just two per cent,” Commonwealth Securities senior economist Ryan Felsman said.


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