Why the Latest Inflation Data Is Good News

The relevance of CPI for property investors

To understand how inflation impacts property investors, it is important to understand the link between CPI and interest rates. CPI, as a measure of inflation for the expenses that consumers face in their daily lives, is closely monitored by the Reserve Bank of Australia (RBA). The RBA uses CPI to adjust interest rates as part of their monetary policy.

An increase in CPI usually indicates that inflation is on the rise, which may lead to higher interest rates as the central bank seeks to manage inflation by increasing the cost of borrowing. An interest rate rise can limit inflation by decreasing demand for goods and services. So, when CPI stablises, interest rates should do so as well – which can be a positive outcome for property investors.

Inflation and property investment

While inflation can be a concern for fixed-income investments, like bonds, it can work in favour of property investors. Property is an asset class that is relatively resilient to many changes in the economy, and when real estate investors factor in inflation, they can benefit from capital gains. As prices rise due to inflation, so too does the value of real estate assets.

So, if you buy a property today, and in ten years’ time its value has doubled, that means your investment has more than outpaced inflation. In this way, real estate works as an inflation hedge and can be a great way to protect your wealth against economic uncertainty.

And when you consider the alternative of keeping your cash in the bank, that can be eaten away by inflation, it’s easy to see why real estate investing can be a smart decision. Certainly, investors who have locked in a low-interest on a property can benefit from that property’s capital growth while their costs remains the same.

The rental income you receive from your investment property can also help you to protect your finances from inflation. As rents increase due to the rising costs of housing, so too do the associated returns on investment for real estate owners.

The bottom line is, despite the current inflation rate being above the ideal target band, it does appear that inflation is stabilising. This offers a more stable investment environment for property investors, allowing them to benefit from capital gains in the years ahead. With many experts forecasting interest rates to remain at the current levels for some time, with potential rate cuts due late 2023, and property values to regain some of their pre-pandemic levels, now could be a good time for property investors to start making their move.

Final thoughts

Inflation is an important indicator for investors to keep in mind, and when inflation is stabilising, it often results in a more favourable environment for property investors. If you’re looking to invest in real estate, inflation is just one of the many factors you should consider.You should also consider contingencies, cost of living and ability to finance your investments , to help you make the most of your real estate journey. 

Investing in property is a long-term commitment, and armed with all the facts it could be an incredibly rewarding venture for investors. When done right, property investment can give you returns that beat inflation and grow your wealth for years to come. With the right strategy and a clear understanding of inflation, you can make smart decisions for your investment journey.

At Ironfish, we have a team of experienced property consultants who can provide tailored advice and assistance for all your real estate investment needs. We believe in empowering our clients with the latest investment concepts, strategies, and lending options through our property investment services as well as our seminars and events. With our exclusive access to iconic properties across Australia, you can feel confident in your investment choices when you partner with us. Let Ironfish be your guide to building a profitable real estate portfolio, no matter the market conditions. Contact us today to find out more.