June 2016
Household Wealth in Australia: Evidence from the 2014 HILDA Survey
This article uses data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey to assess how the distribution of wealth changed for Australian households between 2010 and 2014. Average household wealth increased modestly over that period, driven mainly by growth in the value of financial assets, most notably superannuation. The growth of housing wealth was slow in comparison, particularly in Queensland and Western Australia. While most of the changes in wealth were broadly based across households, wealth increased more rapidly for those residing in New South Wales and for retired households with large holdings of superannuation and equity assets.
Why Has Retail Inflation Been So Low?
Inflation in the price of retail goods has been surprisingly low for a number of years. The considerable depreciation of the Australian dollar over this period by itself would typically have led to higher retail inflation. This article considers whether the direct relationship between the exchange rate and retail inflation has changed, or if other developments in the retail supply chain can account for recent trends in retail inflation. There is little statistical evidence that the relationship between the exchange rate and retail inflation has changed. Discussions with retailers in the Reserve Bank's business liaison program suggest that an intensification of competition in the retail sector and firms' efforts to reduce costs along their supply chain are likely to have contributed to low retail inflation.
The Growth of Apartment Construction in Australia
Apartments have become an increasingly important contributor to new dwelling construction over recent years and in 2015 accounted for more than one-third of all residential building approvals. The majority of recent apartment construction has been located in Sydney, Melbourne and Brisbane. Across these cities there have been differences in geographical concentration, the types of buyers purchasing the dwellings and supply-side factors such as planning frameworks. The increase in apartment construction has reflected a range of factors, including the nature of land supply constraints and affordability considerations, together with a desire to reside in close proximity to employment centres and amenities. Given that these factors are likely to persist, apartments are expected to continue to play an important role in providing new housing supply.
Conditions in the Manufacturing Sector
Manufacturing output and employment have fallen steadily as a share of the Australian economy for the past three decades. This article looks at the composition of the sector and draws on the Reserve Bank's liaison with manufacturers to provide an insight into some of their responses to the structural challenges in recent years. According to liaison, the increase in the supply of manufactured goods from low-cost sources abroad, exacerbated by the appreciation of the Australian dollar during the period of rising commodity prices, impaired the viability of many domestic manufacturers and precipitated the closure of some manufacturing production over the past decade. While the recent exchange rate depreciation has helped to improve competitiveness of Australian producers, so far there is only limited evidence of a recovery in manufacturing output and investment.
China's Demographic Outlook
The significant increase in the working-age portion of China's population over recent decades was an important contributor to China's rapid economic growth. In coming decades, however, China's working-age population is expected to contract and the dependency ratio, which is the ratio of non-working-age to working-age population, is expected to increase substantially. Other things being equal, such demographic changes will have fiscal implications and tend to reduce the economy's potential growth rate. Scenarios presented in this article suggest that it appears inevitable that China's dependency ratio will rise and the working-age population will not increase from current levels. As such, the boost to economic growth provided by the demographic dividend of the past decades is not likely to be repeated.
Banking Fees in Australia
The Reserve Bank has conducted a survey on bank fees each year since 1997. The results of the most recent survey suggest that banks' fee income from both households and businesses rose in 2015, due to a combination of balance sheet growth and higher unit fees on some products. Deposit and loan fees have continued to decline as a ratio to the outstanding value of deposits and assets, respectively.
Liquidity in Fixed Income Markets
Fixed income markets in many jurisdictions have been going through a period of change, resulting in a debate as to whether they are continuing to function effectively, or will function effectively in times of stress. Changes in dealer business models and increased use of electronic trading platforms are influencing the nature of liquidity in bond markets. These changes are not as prevalent in Australia as they are in some overseas markets. For instance, while dealer inventories in US and European banks have fallen, in Australia they have been broadly steady, although they have undergone some substantial compositional shifts. Similarly, electronic trading and, in particular, high frequency trading (HFT), does not account for as large a share of trading in Australian financial markets as it does in US and some European markets. As these changes have occurred, market liquidity in some bond market segments in Australia has declined and is lower than it has been in the past. In contrast, market liquidity in derivative markets appears to have improved, such that overall market liquidity across bond and related derivative markets does not appear to have deteriorated. While this is a positive assessment, it is also likely that accommodative monetary policies in many major economies have supported market liquidity in recent years and it is difficult to determine how robust market liquidity would be in the absence of these policies.
Currency Risk at Emerging Market Firms
Exchange rate fluctuations can affect the value of emerging market (EM) firms in several ways, including through trade-related and balance sheet channels. This article examines the effects of exchange rate fluctuations on listed EM firms' share prices. Overall, a depreciation of the exchange rate is estimated to lower the share prices of around 25 per cent of EM firms, while 15 per cent of firms benefit and the share prices of the remaining 60 per cent are unaffected by a lower exchange rate. Among firms with share prices that are sensitive to exchange rate fluctuations, those that are more indebted tend to be more adversely affected by depreciation. However, there is no significant association between the sensitivity of a firm's share price to exchange rate fluctuations and the size of that firm's foreign currency-denominated debts, consistent with the prevalence of natural hedging among EM firms with such debt.
The graphs in the Bulletin were generated using Mathematica.
ISSN 0725–0320 (Print)
ISSN 1837-7211 (Online)