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QLD Article

Inflation doesn’t have to be a dirty word

There is a saying attributed to the Ancient Chinese which states “may you live in interesting times.” Certainly, we have all felt the past few years have been very interesting.

Whilst it seems miles away, we spent most of 2020 in a Coronavirus induced economic recession, before the economy roared back to life and accelerated well beyond anything we have seen since prior to the GFC. From joblessness being our biggest concern to labour shortages now being a key issue- the swings and roundabouts we have experienced over the past few years in our economy have been unprecedented.

There are positive signs for all SCA (Qld) members in the economy. Unemployment is extremely low, at levels not seen for about 50 years. Prices of key commodities which Australia exports are growing, which in turn helps boost government coffers, funding essential service delivery and infrastructure for all.

However, whether it is because of the twelve-dollar lettuce at the local shop, or a grasping of the chest upon seeing a power or insurance bill, there is one word which has everyone on edge at the moment. Inflation.

Inflation is defined by the International Monetary Fund (IMF) as how much more expensive a set of goods and services has become over a certain period, usually a year. It is always expressed in percentage terms. Put simply, inflation is the reason your dad can talk about 5 cent Paddlepops “in his day” while you can’t get one for under three dollars today.

It’s a word that is often, and perhaps unfairly, associated with negative connotations. It isn’t necessarily a dirty word.

Despite the current doom and gloom being floated, inflation is not all bad. In fact, modest inflation, particularly when it doesn’t exceed the growth in wages is considered a sign of a strong economy. Inflation at modest levels is considered positive when compared with deflation (an overarching reduction in prices) as it encourages spending and consumption. If prices were likely to drop, people will stop spending in anticipation of goods and services getting cheaper and the economy would grind to a halt.

In spite of the need for modest inflation, inflation which if too high robs consumers of their purchasing power and makes everything more expensive in real terms. People need certainty and security that their cash is going to buy them the same goods and services today as it will tomorrow. If inflation outstrips how fast wages and profits grow, the living standards of everyone drop.

There is much discussion about what causes inflation, but the general consensus is that both supply (how easily and cheaply goods or services can be delivered or procured) and demand (how much people have to spend on, and how much they desire that good or service) play a part.

The current issue we are facing is that international and local issues that impact on supply and demand have all hit at once and have upset the delicate balance between good and modest inflation to inflation that is impacting on our living standards.

Inflation will affect every business and strata community differently, but it will have a significant impact over the next year or two. Over the past decade, the inflation rate in Australia has been fairly steady at an increase of between 1 and 3% a year. The most recent announcement by Treasurer Jim Chalmers stated inflation is currently at 6.1% and it is predicted to peak at almost 8% for the year just before Christmas. This is a 30 year high.

What does this mean for the strata industry?

  1. Costs will go up, expect everything from the paper you print on, your lease, power bills and even ink for body corporate seals to increase in price. You will have to find a way to fund this.

  2. Staff will expect wage increases to keep up with their cost of living. This is something you will have to navigate on a case-by-case basis. It is important to remember that the laws of supply and demand apply to labour also. There is a shortage of quality strata managers at the best of times, and it is important to remember there are plenty of jobs out there when negotiating. Good staff are an investment in your business.

  3. Costs for schemes to be run and maintained appropriately will go up. Expect increases in the cost of everything from insurance to sinking fund budgets will go up. You need to prepare your clients for this inevitability.

It also means that if you haven’t already started to address these issues in your business and with your bodies corporate you need to. And SCA (Qld) is here to help you.

On Tuesday 4 October 2022, SCA (Qld) is hosting a webinar about Inflationary Cost Pressures. This feature webinar designed specifically for our members, will be facilitated by our President, Kristi Kinast to raise awareness on this very important and topical subject. Delving into managing inflationary issues, and how to communicate this to your Bodies Corporate, this session will be an open panel discussion on the inflationary cost pressures impacting Strata and Bodies Corporate Management. Our expert panellist will also provide advice on how best to manage these cost impacts throughout the chain (i.e., strata manager to bodies corporate, then bodies corporate to the owners).



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