What’s Really Driving the Rising Cost of Living?

It’s no secret that a big concern that many Australians face is the rising cost of living and we are being led to believe it is food, housing and energy that is driving this. While we can all agree that the cost of goods in these areas has risen in recent times, most of us are unaware of the rising cost of services that are silently creeping up on us.

Inflation and the price creep with essential services

After reviewing research by the Bureau of Labour Statistics in the US in relation to the change in price of consumer goods and services since 2000, I was concerned by what I found. While the statistics are referring to the US, there are similar trends unfolding in Australia. It may surprise you to learn that food and housing are not in the top five areas where there is price creep. What I found was the top five positions are what we would deem as critical or essential services including hospital services, college tuition and textbooks, medical services and childcare.

Looking at the data, it is a stark warning as to how the privatisation of essential services is not necessarily a better way, as it doesn’t reduce costs as we are led to believe, instead consumers pay more and get less. What the findings demonstrate is that Americans are being extorted by the medical industry and dare I say, Australia is not too far behind.

While we have a different and vastly better healthcare system in Australia, when it comes to childcare you only need to talk to parents to know how they feel about childcare providers and the cost of having their children cared for. While I am concerned about the rising costs in these areas and how governments are allowing large multinational corporations to hold everyday Australians to ransom, as an investor I get excited.

That’s because these same areas are often the best place to invest, as profits and growth are generally higher. This is very similar to the banks who we can’t live without, yet they charge over inflated fees allowing them to make record profits year in year out.

On the upside, the data shows that TV’s and other electrical items are getting cheaper. At least we can make a toasted sandwich and watch our favourite reality show and not get annoyed about the cost.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 6.05 per cent followed by Information Technology up 2.16 per cent and Industrials up 0.57 per cent. The worst performing sectors included Materials down 2.96 per cent followed by Consumer Discretionary down 1.23 per cent and Communication Services down 1.20 per cent.

The best performing stocks in the ASX top 100 included Origin Energy up 15.43 per cent followed by Wisetech Global up 11.64 per cent and the Lottery Corporation up 7.88 per cent. The worst performing stocks included Domino’s down 25.22 per cent followed by the A2 Milk Company down 9.86 per cent and Northern Star Resources down 8.60 per cent.

What's next for the Australian stock market?

The All Ordinaries Index traded down again last week making it the third week in succession it has traded lower. It is now 14 trading days since the high on 6 February at 7,779 points and by Wednesday of last week, the Australian stock market hit a low of 7,471 points. On the positive side, Thursday’s trading did not fall below that level, while last Friday the market traded up for the first time in over a week.

The current level where the All Ordinaries index is sitting is at the high end of my price target for the fall, which was around 7,500 points, so it is possible we may see the market find support and turn to rise any day. That said, further falls are still possible, and my target as previously mentioned is 7,200 points or about 4 per cent from where it closed on Friday.

I don’t believe the current fall will last too much longer and I don’t expect it to fall below my lower target of 7,200 points. As such, investors should not be concerned, rather I would hope investors are getting excited about the possibility of entering into some very good stocks at great prices.

The down move at present is not really surprising, as we are in reporting season, which is due to end this week. Many investors are surprised when a stock falls away in price after reporting good results, as Qantas did last week. But you need to remember that the big end of town gets into stocks in the hope of future earnings growth like Qantas, so the best time to sell or adjust their holdings is on good news. Don’t let this volatility put you off, as Qantas is still a good stock as are many others that have been hit in the past few weeks.

Again, now is the time to get excited rather than be fearful. Smart investors will be doing their research right now and patiently waiting for opportunities.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.