Rocketing house prices and credit growth are not in a bubble but are the natural result of historically low interest rates which are not going to change any time soon, says veteran economist Chris Richardson.

The Deloitte Access Economics partner said interest rates were likely to remain low for years because any surge in inflation beyond short-term pandemic influences was still a long way off.

“We’ve been saying this for a while, but there are still too many people who are too worried about inflation and interest rates,” Mr Richardson said in Deloitte’s quarterly business outlook released on Monday.

He labelled recent cost spikes as “mostly a dead cat bounce” linked to the withdrawal of pandemic supports, a bounce back in demand for commodities such as petrol and wood, and increased post-lockdown demand putting increasing pressure on supply chains.

“A sustained increase in inflation requires a sustained and large lift in wage growth. And that is miles off: wage growth is still a bug on the windscreen of this pandemic.”

 

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Credit: Financial Review

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