Hedge Clippings | 02 October 2026

Who's Fighting Inflation, and who's adding to it?

There are weeks when the economic tea leaves require careful interpretation, and then there are weeks when the Reserve Bank, the ABS and the Treasurer manage to lay them out in reasonably plain English.

This was one of the latter.

On Tuesday, the RBA unanimously increased the cash rate by another 25 basis points to 4.60%, its fourth increase this year and the highest cash rate in 15 years. The explanation was straightforward: inflation is too high, demand continues to exceed the economy's capacity to supply it, and financial conditions need to be tighter.

Then, just in case anyone thought the RBA was being unnecessarily gloomy, along came Wednesday's CPI figures.

Headline inflation jumped from 3.5% to 4.0% in the year to August. More importantly, trimmed mean inflation - which strips out some of the volatile movements - remained stubbornly stuck at 3.6% for the third consecutive month.

Both remain comfortably above the RBA's 2-3% target.

It's the war. Except when it isn't.

Treasurer Jim Chalmers was understandably keen to point towards events beyond Australia's shores.

Automotive fuel prices jumped 14.8% in August alone, driven by higher world oil prices and the unwinding of the remaining federal fuel-excise relief. Chalmers argued that the "overwhelming reason" headline inflation jumped from 3.5% to 4.0% was higher global oil prices, exacerbated by the Middle East conflict.

But it isn't quite the whole story, because Michele Bullock had been rather explicit the day before: "Inflation is too high and has been driven by domestic capacity pressures." The Middle East inflation shock, she added, comes on top of those domestic pressures.

Australia didn't suddenly develop an inflation problem when the latest Middle East conflict pushed oil above US$100. The RBA had already started raising rates because the economy was operating with excess demand.

Or, in the Governor's refreshingly uncomplicated description, "we are consuming more than we can supply as an economy."
Which rather brings us to the elephant in the Treasury room.

In 2018-19, the last full financial year before COVID, Australian Government cash payments were 24.6% of GDP, while the underlying cash deficit was effectively zero - just $0.7 billion.

For 2026-27, federal government payments are forecast at 26.8% of GDP, while the underlying cash deficit is forecast at about $31.5 billion, or 1.0% of GDP.

Before COVID, Canberra was therefore spending the equivalent of 24.6 cents in every dollar of GDP and had essentially balanced the budget. Today it is spending almost 27 cents, running a deficit which it is expected to do for the next 40 years.

Of course, not every dollar of government spending is inflationary. Productive infrastructure can increase capacity, while a deficit doesn't automatically cause inflation, but timing matters.

When the RBA says Australia is already consuming more than it can supply, and that both public and private demand are contributing, running government expenditure materially above its pre-COVID share of the economy becomes harder to dismiss as irrelevant.

Two feet on different pedals?

The RBA has one principal weapon against excess demand: interest rates.

Canberra has rather more.

Bullock was specifically asked whether public-sector spending was adding to aggregate demand. Her answer was yes - although she was careful not to allocate blame. Both public and private demand are contributing.

Chalmers counters that public demand growth is slowing. However, slowing government spending growth isn't the same thing as government spending falling.

The RBA is deliberately attempting to remove demand from the economy by increasing the cost of money. Meanwhile, governments continue to contribute to aggregate demand.

One arm of economic policy is pressing the brake while another still has a foot on the accelerator. Meanwhile, mortgage holders might reasonably wonder why theirs is the foot being asked to press harder.

And then there's productivity

Possibly Bullock's most important comment received rather less attention than the rate increase: "The bottom line is that productivity is doing nothing." That's the other half of the inflation equation. If demand is growing faster than supply, you can either reduce demand or increase the economy's ability to supply goods and services.

The RBA can only do the former.

Unfortunately, interest rates are a particularly blunt instrument. They don't reduce the world oil price, build houses or improve productivity. They do increase mortgage repayments, discourage investment, and persuade households to spend less.

The irony is that Chalmers and Bullock aren't actually contradicting each other as much as it might appear. The Treasurer is correct that the latest jump in headline inflation was overwhelmingly driven by fuel and energy. The Governor is equally clear that Australia's underlying inflation problem predates the latest oil shock and reflects an economy in which demand remains greater than supply.

The RBA has now raised rates four times this year and says it will increase them again if necessary. The question is who should carry the burden of fixing the problem. At the moment it's those with a mortgage, and if Bullock is to be taken at her word, they're soon to be joined by the swelling numbers of unemployed.

If public demand is admittedly one component of Australia's excess demand, how much of the inflation-fighting burden should continue to fall on mortgage holders and the unemployed, and how much should fiscal policy carry?

Or, to put it another way, while Michele Bullock has her foot firmly on the brake, and Jim Chalmers is keeping his foot on the accelerator, it's the rest of us who are left to foot the bill.

One scenario - or question - that will start to raise its head is whether the RBA's inflation target of 2.5% is realistic, even if Bullock envisages that reaching that goal is two years away, without a recession to achieve it?

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The AI data centre backlash: can the boom survive contact with local politics?

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September 2026

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A Tale of Two UN Speeches

FundMonitors.com

September 2026

(4-minute read)

If you wanted an illustration of two very different views of how the world should work, you could do worse than compare Donald Trump's address to the United Nations this week with Anthony Albanese's a few days later.

Trump spoke for around twice as long as Albanese -- roughly 38 minutes against 19 -- although anyone familiar with either man's speaking style probably won't be terribly surprised by that.

But it wasn't just the length that was different. The underlying messages were almost mirror images of each other.

Trump's was essentially America first, sovereignty first, and international institutions a distant third. Albanese's was much more traditional Australian diplomacy: the rules-based international order matters, multilateral institutions matter, and middle powers such as Australia need both of them.

In fairness, there is a perfectly logical reason for the difference.

The United States is the world's largest economy and possesses the most powerful military. Australia, for all its advantages, is a nation of 28 million people sitting a long way from most of its traditional allies. When the schoolyard gets rough, the biggest kid and the medium-sized kid understandably have rather different opinions about the importance of playground rules.

Trump: power talks

Trump's speech was dominated by national sovereignty, American strength and the proposition that diplomacy works rather better when backed by economic and military power.

Iran featured prominently, as did Ukraine and the wider Middle East. His message was characteristically uncomplicated: America would negotiate where negotiation worked, apply economic pressure where necessary, and retain the option of military force.

He was equally forthright about the United Nations and other international institutions. Trump's longstanding suspicion is that too many international bodies have accumulated bureaucracy, expense and influence without producing results commensurate with any of the three.

His answer is less multilateralism, not more.

And then there was climate change.

Trump remains fundamentally opposed to much of the international climate agenda and the economic costs he believes it imposes. Albanese, by contrast, put climate change -- particularly its implications for Australia's Pacific neighbours -- firmly among the challenges requiring greater international cooperation.

You would struggle to find two more different approaches.

Albo: rules matter

Albanese approached the same podium from almost the opposite direction.

His argument was that the international system is under considerable strain, but the solution is to strengthen and reform it rather than abandon it.

That position makes strategic sense for Australia irrespective of domestic politics.

International rules are generally rather more valuable to countries that aren't superpowers. If the alternative is simply that might is right, Australia has considerably more to lose than the United States, China or Russia.

There was another reason for Albanese to emphasise the virtues of the UN: Australia wants a non-permanent seat on the Security Council for 2029-30. His New York visit was therefore as much a job interview as a philosophical defence of multilateralism.

Nothing wrong with that. Diplomacy, like politics, is partly about counting the votes.

And then there's AI

Possibly the most interesting difference between the two speeches -- particularly from an investment perspective -- concerned artificial intelligence.

Trump views AI primarily through the prism of technological and strategic competition, particularly with China. His instinct is to resist international regulation that might constrain American companies or slow innovation.

Albanese took a markedly different approach, arguing that governments need to cooperate on safeguards and standards so that humans remain in control of the technology rather than the other way around.

Again, both positions contain a legitimate economic dilemma.

Regulate too aggressively and you risk stifling innovation, investment and productivity. Regulate too little and governments may discover that by the time they understand the consequences of the technology, the horse hasn't merely bolted -- it has designed a faster horse, bought the stable and automated the bloke who used to close the gate.

Two speeches, two worlds

The temptation is to view the speeches simply through the prism of Trump versus Albanese, or Republican versus Labor.

The more interesting interpretation is that they reflect the countries they represent.

Trump believes the United States has spent too much money supporting an international system while allowing other countries to take advantage of American markets, defence spending and security guarantees.

Albanese believes Australia benefits enormously from that same system and therefore has a strong interest in preserving it.

In a sense, they can both be right about their respective national interests, even while reaching very different conclusions about what should happen next.

For investors, however, the important point is not who delivered the better UN speech.

It is what the speeches tell us about the environment in which we're investing.

The post-war consensus around free trade, globalisation, multilateral institutions and increasingly integrated economies is being challenged. Defence spending is rising. Trade barriers are back. Energy security has become as important as energy transition. AI is developing faster than governments can decide how to regulate it. And geopolitical risk is no longer something investors can safely relegate to the final paragraph of an investment committee paper.

Trump's answer is essentially strength, sovereignty and fewer constraints.

Albanese's is rules, cooperation and stronger international institutions.

Whether either approach produces the desired result remains to be seen.

But after listening to almost an hour of speeches between them, one thing seems reasonably certain.

The world is becoming a considerably more complicated place in which to invest.

And unfortunately, unlike the delegates at the UN, investors don't have the option of walking out.

Australian Secure Capital Fund - Property Update

Australian Secure Capital Fund

September 2026

The Australian property value decline continued in August with a -0.9% monthly fall. This is the fifth consecutive monthly decline, with values now falling 3.6% below the market peak recorded in March.

Sydney (-1.4%) and Melbourne (-1.1%) are still setting the pace in this regard, posting their seventh consecutive monthly declines.

However, the mid-sized capitals have all joined the slide now too, with Brisbane (-1.0%), Adelaide (-0.8%), Perth (-0.8%), Canberra (-1.1%), and Hobart (-0.2%) all posting monthly declines. Darwin (+0.6%) was the lone outlier that posted a monthly increase in values in August.

Largely, this is a reflection of declining buyer demand, with Cotality's quarterly home sales estimate tracking 15.5% lower than at the same time last year. Similarly, capital city listings were 24% higher than a year ago in the four weeks to August 30.

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Hedge Clippings | 25 September 2026

Bond markets take most of the focus this week. The US 10-year Treasury yield pushed back to levels not seen since before the GFC, Australia's unemployment rate climbed to 4.6% despite employment increasing, and ASIC sharpened its warning to private credit managers. All of which sets up an interesting RBA meeting next Tuesday.

Five per cent wasn't the ceiling: The US 10-year keeps climbing

The US 10-year Treasury yield reached 5.20% on Thursday, its highest level since 2007, while the 30-year Treasury climbed to 5.48%, its highest since 2004. The move reflects a fairly uncomfortable combination of resilient US growth, inflation concerns, higher energy prices and government borrowing. It has also been part of a wider global bond sell-off rather than an isolated move in US markets.

The reason the 10-year matters is that it is one of the main reference points for the global cost of money. When investors can receive around 5% lending to the US government, borrowers elsewhere have to compete with it. Refinancing becomes more expensive and investors expect greater compensation for taking additional credit, liquidity, or duration risk. It is also worth remembering that the Federal Reserve doesn't directly control this end of the market. The Fed can set overnight rates; investors ultimately decide what they are prepared to accept to lend money to the US for ten or thirty years.

For most of the post-GFC period, markets became accustomed to unusually cheap money. That era is looking increasingly distant. Five per cent was supposed to be the scary number. The bond market seems to have decided it was more of a speed bump.

Yields at these levels are proving a headache for Donald Trump, adding to what was a difficult week for him. His man at the FED has just raised rates against his wishes, US debt now stands at US$40 trillion, and has increased by $2.5 trillion over the past 12 months. If, (and it's a big IF) he wins the upcoming mid-term elections, his promise of $5,000 per adult is estimated to add another $1.2 trillion to next year's figure, adding further upward pressure on bond rates and further juicing up inflation.

Elsewhere for Trump, his attempt to silence some of his media critics failed, firstly by a rare show of solidarity from his traditional media supporters, and then by the courts declaring his move unconstitutional. His rambling address to the UN General Assembly lasted almost 40 minutes (the average by his peers is around 15 minutes, and Albanese's earlier this morning lasted 19 minutes) focused on the war with Iran which he started, more than the war in Ukraine which he promised to stop. Both are driving global inflation, which will increase further if he follows through on his threat to limit US diesel exports.

ASIC tells private credit the clock is ticking

Private credit was back in the spotlight on Tuesday when ASIC Commissioner Simone Constant delivered the keynote address at CAFBA's Commercial Property & Development Finance Summit in Sydney. Her message wasn't particularly subtle: the "clock is ticking".

Constant said ASIC is beginning to see the first significant cracks emerge as weaknesses in parts of the sector are tested under tougher conditions. Bathla is the obvious recent example, with 40 private credit funds reportedly exposed to the failed developer to the tune of 3.4bn.

ASIC's concerns go considerably further than one borrower. Its review of 28 private credit funds found only four published information about the interest rates or ranges charged to borrowers, fewer than half had detailed written credit, impairment and default-management policies, and only two of the wholesale funds conducted stress testing as part of liquidity-risk management. For a sector ASIC estimates has grown around 500% over the past decade, the regulator's view is that governance, controls and underwriting standards haven't always kept pace. Constant described it rather neatly: parts of the sector have tried to "run before it could walk".

Bathla also demonstrates why treating private credit as one homogeneous investment strategy isn't particularly useful. Concentrated lending to a property developer carries very different risks from diversified residential mortgages, corporate lending, medical finance or other asset-backed credit. The label tells you the broad sector, but not the underlying asset class. The loan book - if you can see it - tells you where the risk actually is.

Unfortunately, and unhelpfully, the "private credit" label is being used too widely when not all private credit is the same, nor represents the same risk, even though ASIC's general warnings about reporting, valuations, terms and fee transparency are real.

Australia added jobs and unemployment still rose. Both can be true.

Australia added 39,500 jobs in August, almost twice market expectations, but unemployment still rose from 4.5% to 4.6%. The apparent contradiction is mostly explained by more Australians entering the labour force. Participation increased to 67.1%, meaning employment rose but not quickly enough to absorb everyone looking for work.

There was some softness underneath the headline number. Part-time employment rose by 45,800 while full-time employment fell by 6,300. On the other hand, hours worked increased 0.7%, and underemployment edged down to 6.2%. So the labour market is loosening, but it is hardly falling off a cliff.

Which leaves the RBA with a problem. The Board meets for 2 days on Monday, with its rate decision due at 2.30pm on Tuesday. The cash rate currently sits at 4.35%, while inflation remains stubbornly above the RBA's 2-3% target and Governor Michele Bullock has warned that some further upside inflation risks appear to be materialising.

The Board therefore has evidence of a gradually cooling labour market on one side, and persistent inflation, elevated energy prices and rising global borrowing costs on the other. There is one more complication: the ABS releases the August 2026 CPI at 11.30am next Wednesday, less than a day after the RBA announces its decision. Nothing like making the rate call on Tuesday, and getting the inflation update on Wednesday.

As usual, the explanation for the decision may prove just as interesting as the decision itself. With almost 100% of the market, and all the major banks expecting a hike of 0.25%, it is unlikely there will be any surprises, just further pain for borrowers, and pressure on the real estate market.

No doubt Jim Chalmers, and Albo on his return from the UN, will have plenty of reasons to deny any responsibility.

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