In the wake of Tuesday’s Chalmers offensive on the cost of living, economists and normal people alike are grappling with the fundamental paradox that the stimulatory measures unveiled will merely increase spending, spur inflation and thus exacerbate the – er – cost of living.
The out-of-left-field measure – the $300 per household energy rebate – is designed to reduce short term inflation by lowering power bills. But if grateful consumers then splurge the benefit on a retail spending spree, CPI pressures will only increase in the longer term.
The same applies to the rental assistance package worth $1.9 billion – not that we are begrudging such assistance.
The well-flagged $20 billion of tax cuts effective from July 1 presumably already was baked into official inflation estimates.
Come to think of it, if the government had really wanted to whack inflation on the head it would have increased taxes and introduced an energy surcharge, but one suspects your columnist’s career prospects as a political adviser are limited.
Treasury estimates the total cost-of-living package – lower rents, the energy bonus and a freeze on pharmaceutical co-payments – should lower headline CPI inflation by 0.5 per cent, leading to a 2.75 per cent rate by June 2025.
But Commonwealth Securities says the government is using “shock therapy” to reduce the underlying inflation rate – a risky strategy if householders spend the gains rather than save them.
According to Evans and Partners, the tax cuts averaging $1888 per worker will add 1.3 per cent to household disposable income, while the energy rebate will chip in 0.2 per cent.
So if householders don’t squirrel away their extra nuts, the obvious beneficiaries are JB Hi Fi (ASX:JBH), Harvey Norman (ASX:HVN), the supermarkets and Wesfarmers (ASX:WES).
The former two are also a likely beneficiary of the extension of the $20,000 instant write-off allowance for small business on equipment such as computers.
The loose coins will flow fastest from cash-strapped households to buying non-discretionary goods, rather than $4400 Prada tote bags from Cettire (ASX:CTT).
As the owner of the Kmart and Target chains as well as Bunnings, Wesfarmers is a likely beneficiary although there are more moving parts to the conglomerate than a Meccano set.
Baby Bunting Group (ASX:BBN) shares have been in full temper tantrum mode, having lost 32 per cent of their value in the past year because of soft sales, supply chain problems and parents trading down to cheaper nursery essentials.
The Reject Shop (ASX:TRS) shares have tumbled 29 per cent so far this year. But the discount chain’s half-year results were creditable and the $147 million market cap is supported by $80 million of cash (the company is undertaking a share buyback of up to $10 million).
Other retailers in the budget bargain bin are the serial profit downgrader Bapcor (ASX:BAP), Kogan Group (ASX:KGN), Kathmandu (ASX:KMD), shrinking plus-size retailer City Chic Collective (ASX:CCX) and Super Retail Group (ASX:SUL).
Kathmandu seems to have achieved peak puffer jacket, with first-half sales plunging 14.5 per cent on the back of inconveniently warm weather.
In other cases the problem is not just at the register. For instance, Kogan shares have been whacked 33 per cent over the last month, on revelations of share sales by CEO Ruslan Kogan and CFO David Shafer three weeks ahead of a poor sales update.
Super Retail has suffered not only from weak sales but an expected damages suit pertaining to claims – denied by the company – that CEO Anthony Heraghty engaged in inappropriate workplace behaviour.
This back-of-the bus cohort of troublesome stocks can still benefit from the budget largesse – if they can get their act together.
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