I believe that most people would be well-served by investing in various asset classes, including shares and property. I do not believe that any one asset class is superior. They all have their pros and cons which you can balance out in a diversified investment portfolio, which could include commercial property.
Commercial property does have some wonderfully attractive attributes but it’s important to introduce it into your portfolio at the right time (stage of life) and of course, invest in the right asset using the right methodology.
I will explain this in a two-part blog. This first part will provide an introduction to commercial property. The second part will consider how to successfully invest in this asset class.
Attraction to commercial propertyMost investors are very familiar with residential property as an investment option. As I have highlighted in this blog many times, residential property is a growth asset because it provides most of its total return in the form of capital growth and proportionately very little income.
One of the main attractions to commercial property is that it typically provides a higher level of income, which may be particularly attractive if you are close to retirement, or you already own a few residential investment properties.
Types of commercial propertyCommercial properties can have a varying array of attributes and no two properties are likely to be identical. That said, there are three broad categories of commercial property:§ Office: An office building is usually a multi-level building that has multiple tenants. These buildings are typically situated in central, well-established locations (CBD or suburban hubs), which adds to their scarcity and tends to drive capital growth.§ Retail: this includes retail shops in suburban shopping strips, mixed-use premises, and specialised properties such as service stations and restaurants. Because these assets are typically located in high-demand locations, they tend to generate lower rental yields.§ Industrial: this includes industrial sheds, bulky goods centres (bunnings) and the so on. These assets tend to be located in outer, fringe locations and as such may offer higher rental yields.
How does commercial differ from residential?Given most people have an understanding of residential property attributes, I thought the best way to introduce commercial property is through making a comparison with residential property.
Rental yieldWith regard to rental income, there are two main differences between commercial and residential property.
Firstly, a commercial tenant pays for most of a property’s expenses including rates, insurances, maintenance and so forth. The only exception to this may be land tax. In Victoria, if the lease is covered by the Retail Leases Act 2003, the landlord cannot on-charge the cost of land tax to the tenant. However, as property is regulated by the states, rules may vary from state to state. Suffice to say that given a commercial tenant pays for almost all expenses, it means these investments tend to generate a lot more income than residential properties.
Secondly, rental yields tend to be higher than residential, especially for office and industrial properties. Office rental yields tend to range from 4% to 6% p.a. Industrial rental yields can range from 4% to 9% p.a. This compares favourably to residential houses which typically yield circa 2% p.a. gross (in Melbourne and Sydney), which might be reduced to just over 1% p.a. after all expenses (of course, well-located residential houses more than make up for this with capital growth).

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Last week, I shared what risks and opportunities investment markets could offer us during 2022. These market expectations helped my wife and I set our personal, relationship, business and financial goals for 2022.
It is stating the obvious to so say that goal setting is important. I believe that if you aim at nothing, often that is exactly what you will achieve; nothing! Goal setting gives you more control over where your life is heading. Drive the bus. Don’t merely be a passenger on it.
Part 2: Goal setting processThis blog sets out the goal setting process that my wife and I followed this year. However, I must say that I don’t think there is a right or wrong goal setting approach. It’s simply about finding the approach and process that suits you. Hopefully this blog gives you some ideas and a broad framework.
Some tips I have learnt over the yearsI have two tips that I would like to share with you to help you set goals.
Firstly, make sure your goal is specific, realistic and measurable. For example, a goal of “get fit” or “lose weight” is useless because it’s too vague. You must be specific, so that you can measure your progress.
Secondly, don’t be afraid to set a low bar, especially if this is the first time you have set this goal, or you have failed to achieve it in the past. Remember, some progress is better than none at all and you can always increase the goal/target during the year. For example, you might be super motivated to get into shape this year and be tempted to set a goal of exercising 6 days per week. The problem is that for most people, this will be too hard to stick to for the whole year. And the reality is that if you exercised 3 times per week for say 42 out of 52 weeks, it would go a very long way to helping you achieve your end goal. Also, don’t set too many goals. Unrealistic goals are very demotivating.
For example, to illustrate these two tips above, my health goals read like this; (1) exercise for 40 minutes at least 3 times per week – I track this (and other goals) using an app called Easy Habits, (2) never eat after 8:30pm and (3) I can eat whatever I want one day per week (i.e. one cheat day).
Remember, when it comes to completing goals, consistency way more important than effort. Just 1% of improvement/effort every day for a year will result a 37x improvement.
Step 1: Review last years goalsThis first thing we do is review last years goals. There are two reasons for this.
Firstly, it is important to identify any goals that you haven’t achieved and decide whether to include them on this year’s list.
Secondly, it’s wise to consider why you haven’t achieved any goal. If it was circumstances beyond your control, then it’s probably appropriate to include the goal again this year. However, if there are other reasons, then perhaps you can improve your implementation such as creating some form of accountability. Or perhaps it’s just a case that the goal isn’t that important to you, which is fine of course, but means maybe it shouldn’t have been a goal in the first place.
Step 2: Forecast this year’s cash flowMany goals are dependent upon cash flow e.g. holidays, home improvements and virtually all financial goals. Therefor

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It is stating the obvious to say that goal setting is important. The fact is, if you aim at nothing, often that is exactly what you will achieve; nothing!
Each year my wife and I set personal, relationship, business and financial goals. We almost always achieve all the goals we set for ourselves each year. I want to share the process which we’ve just completed and share what I think 2022 might bring us investment-opportunity-wise, as this will help you set realistic goals.
Part 1: Investment risks and opportunities that 2022 might bringOn one hand, you should never let markets dictate your investment strategy or decisions. Market sentiment almost always reflected short-term fears and greed – neither of which are any use when making long-term financial decisions. However, understanding markets is helpful in prioritising which goals are most important to implement in the next 12 months.
For example, if you plan to invest in shares and property, but feel shares are wildly over-valued, then you could conclude to invest in property in 2022 and reconsider shares in 2023.
Therefore, I think it is useful to consider what opportunities and risks markets might present during 2022.
Australian property market in 2022The challenge with forming a view on the property market is that the past 12 months has been influenced by very slow supply i.e. fewer investment grade houses for sale. As such, some buyers have been driven by FOMO and been prepared to overpay for property just to “get into the market”.
Listings in Brisbane are about one third below their usual volume and stock levels in Melbourne and Sydney are also lower, although certainly not to the same extent as Brisbane. Listing numbers in regional locations, particularly beach-side locations, are also chronically low.
If supply remains tight i.e. there are fewer properties than there are buyers, property prices will continue to appreciate, albeit at a slower rate than in 2021. Supply will eventually increase because higher prices encourage more sellers to come to market. However, I don’t think that will happen until the Covid risk disappears. Of course, no one knows when that will happen!
Price becomes more important the further you move down the quality scaleFor the sake of this example, let’s assume that Covid evaporates over the course of 2022 and that 2023 brings us a normalised property market i.e. supply returns to normal levels. It is very possible that we may see prices pull back by 5-10%. That’s because there is no longer any pressure to overpay to buy a property. For example, properties that were selling for $1.2-1.3m range may sell for $1.1-1.2m range, which may fairly represent their intrinsic value. If this happens, people that overpaid for property in 2021 might find themselves in a paper-loss position for a short period of time. In short, the consequence of overpaying could be that you accumulate very little equity in your property over the first few (2-4) years of ownership.
If you plan to buy a property (e.g. a home) in a non-investment-grade location, then it is increasingly important to not overpay for property. The further down the quality scale you move, the more the price/value assessment becomes. That’s because high-quality, investment-grade locations tend to benefit from strong price appreciation, and this strong growth quickly makes up for the financial impact of overpaying. However, in lower growth locations, the consequence of overpaying can sting for many years.
I must highlight that when buying an investment-grade property, the quality of the proper

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For my final podcast for 2021, I thought it would be interesting to look back to see how various investment asset-classes performed. This is important for two reasons. Firstly, it is wise to benchmark your investment returns so that you can assess relative performance. Secondly, it serves as a salient reminder about the cost of delay and procrastination.Short-term returns are unimportantIn isolation, short term returns are meaningless. That’s because your focus as an investor must be on maximising medium to long term investment returns. What can I invest in today that is likely to generate the highest returns over the next 5 to 10 years? That is the question you must ask yourself.Therefore, it’s important to highlight at the beginning of this blog that you should not put too much importance on short-term (i.e. 1 year) investment returns. Resist the temptation to guess what asset class will perform best next year. Instead, ask yourself which asset class or investment will produce the highest returns over the next 5+ years i.e. between 2022 and 2027.Share marketsIt was a year of two halves in share markets this year. The first half benefited from strong price appreciation, particularly for value stocks. The second half was adversely impacted by a few things including the risk that higher inflation may not be transitory, interest rate hikes occurring sooner than expected, central banks tapering QE and more recently, the potential impact of the new Omnicom variant.The table below sets out returns until the end of November 2021 for the main geographical markets.
https://www.prosolution.com.au/wp-content/uploads/2021/12/Equity-market-returns-table.png
Emerging markets predominantly include China, Taiwan, South Korea and India. They have been impacted by all the concerns listed above plus many Chinese-specific matters including diplomatic and trade-related tensions, Evergrande default (that occurred last week), tech industry crackdown and economic growth concerns.This has conspired to make emerging markets the most attractively priced sub-asset class, behind the UK market, as illustrated in the table below.
Expected returns are calculated by Research Affiliates, LLC using various evidence-based valuation models. Total return is the aggregate of income + earnings growth + change in valuation multiples.
https://www.prosolution.com.au/wp-content/uploads/2021/12/Expected-share-market-returns.png
Bond marketsAustralian bond investment returns this year are the worst since 1994. The Bloomberg AusBond Composite 0+ Yr Index lost 3.23% in the 12 months to the end of November 2021. Australian corporate bonds have performed slightly better losing circa 2% over the same period.Global bonds have also produced negative returns over the past 12 months – the Bloomberg Global Treasury Scaled Index (hedged) lost circa 1.5%.Bond values have been adversely impacted because the market has factored in the risk that interest rates may rise sooner than originally anticipated due to inflationary pressures. This is a lot more likely in the US than it is in Australia. Comparatively, it appears that the Australian bond market has overreacted to this risk.I should highlight that bonds play an important role in a portfolio’s asset allocation because they are negatively correlated with shares. That means when shares rise in value, bonds tend to fall and vice versa. Given share marke

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Paying Capital Gains Tax (CGT) isn’t necessarily a bad thing because it means that you have sold an asset and made a profit, which is better than a loss, of course. That said, I’m certain that most people would prefer to pay less tax, not more. Therefore, it’s important to understand the ins and outs of CGT.
Capital Gain Tax basicsThe amount of tax you must pay on any capital gain is calculated using the below formula (for any asset purchase after 20 September 1985).
See here.
(A) Net sale proceeds – this includes the amount that you received less any direct selling costs such as advertising expenses, agent fees, legal fees, brokerage and so forth. If you have gifted the asset or sold it to a related party for less than market value, then your net sale proceeds are deemed to be equal to its market value.
(B) Cost Base – this includes the total cost of the asset, which is what you originally paid for it plus any related costs such as brokerage for shares, stamp duty and buyers’ agent fees for property, legal fees, professional fees and so forth. You may be able to include any holding costs and capital improvements in your cost base if you haven’t already claimed a tax deduction for them. The cost base will be reduced by any depreciation or amortisation claimed on the asset during the ownership period.
(C) 50% discount – if you have owned the asset for more than 12 months and you are a resident for Australian Tax purposes, you are entitled to reduce the net capital gain by 50%.
(D) Marginal Tax Rate – The final step is to multiple the discounted capital gain by your marginal tax rate. For example, if you earn between $120,000 and $180,000, your marginal tax rate is 39% (including 2% Medicare levy).
An exampleLeo purchased a property in 2002 for $550,000. The total costs associated with the purchase was $33,000. Leo sold the property in December 2021 and received $2.1 million net of all selling costs. As such, the gross gain is $1,517,000. The discounted gain is $758,500. And as Leo earns over $180,000 p.a. from his job, the whole gain will be taxed at the highest marginal rate of 47%. Consequently, Leo will have to pay $356,495 of tax when he lodges his tax return after 1 July 2022.
What if you make a capital loss?A capital loss occurs when your net sale proceeds are less than your cost base. Capital losses can be used to offset capital gains. However, capital losses cannot be used to offset other income (such as employment income). Instead, you may carry a capital loss forward to use it in future years if/when you make a capital gain.
Main residence exemptionYou are permitted to claim a CGT exemption on your home if (1) you and/or your spouse live in it, (2) you have not used it to generate an income e.g. rented it out and (3) the land is 2 hectares (2,000 sqm) or less.
Your spouse and you can only nominate one main residence at any one time. Therefore, if you have two homes (e.g. a city residence and a beach-side property), only one of those properties can be deemed as your main residence.
Various rules apply for different situations such as your main residence being on multiple titles e.g. adjoining vacant land, you have multiple dwellings on the same title, or you subdivided your main residence. In these circumstances, it is very important to obtain professional advice from a holistic accountant.
Converting a main residence

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After almost 20 years of interacting with investors (and potential investors) on a daily basis, I’ve noticed some common themes that prevent investors from achieving their potential. If you can avoid all three, you are almost guaranteed to achieve financial security.Whilst some of these matters seem relatively simple, you should not let their simplicity fool you into thinking that they are anything less than critical.Why do we tend to overcomplicate matters?I believe that investing is simple. If you adopt a rules and evidence-based approach towards making investment decisions, it is virtually impossible to make a mistake. Successful investing is rooted in sound logic and basic math. There is nothing overly complex about it that cannot be explained in simple terms. That is why I wrote Investopoly – to outline 8 time-tested rules that if followed, would guarantee investors avoid making costly mistakes. I apologise if that sounds like a sales spiel. And I appreciate it sounds like a big promise. But I stand by it.If investing is simple, why do people over-complicate it? Of course, the reason depends on the individual. However, I think there are probably two reasons.Firstly, there is a lot at stake i.e. my family’s financial security, our dreams and goals. Given what’s at stake, people can have the tendency to over-think it due to fear of making a mistake.Secondly, to many people, investing seems complex. Humans tend to think that complex problems require complex solutions. The truth is, simple solutions tend to be very effective, exhibit lower risk, lower cost, easy to implement and easy to understand.Most mistakes are made by over-complicating financial decisions than over-simplifying them.Investment mistake # 1: try to work it all out themselvesAs a rule, I don’t perform my own dental work. I go to a dentist. When buying a property, I don’t do the conveyancing myself. I engage a professional and experienced lawyer. I don’t service my car… you get the point.I rely on various professionals when (1) the consequences of making a mistake are unacceptable and (2) I don’t have enough knowledge and experience to give me a high level of confidence that I will not make any mistakes.It has always puzzled me why someone would invest more than $1 million of borrowed money (e.g. buy an investment property) without getting any professional advice. Firstly, $1 million is a lot of money and the relative performance (e.g. 1% p.a. more) of the asset over 10+ years can make a huge difference in dollar terms (which I previously demonstrated here).Secondly, you are investing money that’s not yours i.e. borrowed money. It’s not yours to lose. And it comes at a cost (interest rate) – and that cost is guaranteed – you must pay it regardless. Therefore, if you are on the hook for the cost of debt, you should take all possible steps to minimise the risk of under-performance. If you are not prepared to do that, then perhaps you shouldn’t be borrowing to invest.Investment mistake # 2: to reduce risk, aim for a quick profitFor almost 20 years I have written ad nauseam that ‘playing the long game’ gives you the greatest chance of successfully building wealth. That is, make investment/financial decisions that are focused solely on maximising outcomes in 10+ years’ time. This allows you to drown out all the (media) noise and focus on sound fundamentals. Fundamentals, not noise (rhetoric), drive investment returns in the long run.H

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With property and share markets trading at all-time highs, it’s reasonable and perhaps prudent to consider whether we are in a (asset price) bubble. Bubbles cannot grow indefinitely and at some point, all bubbles burst.
Is the share market about to crash?Share markets around the world have been incredibly resilient throughout the pandemic and almost all markets are trading above pre-pandemic levels. That probably shouldn’t come as a big surprise, as government fiscal support here and abroad has been unprecedented and interest rates couldn’t be much lower.
Rivian is a good example of a bubbleThere are some very clear examples of bubble-like share market valuations. The recent listing of shares in Rivian Automotive Inc. in the US (NASDAQ) is a perfect example. It listed on 9 November raising $US12 billion from investors. Rivan is valued at $US110 billion making it the 5th most valuable automotive manufacturer in the world, behind Volkswagen, which sells 2.8 million units (cars) per year. It’s worth almost as much as Australia’s most valuable company, CBA.
Perhaps the most noteworthy thing about Rivian is that is hasn’t manufactured one product yet. That’s right! It hasn’t generated $1 of revenue, let alone a profit. It is true that Amazon has agreed to buy 100,000 electric delivery trucks from Rivian, which are to be on the road by 2030, but it effectively hasn’t manufactured one unit. There is no conceivable way on earth that a $US110+ billion valuation could be justified for this company. It’s insane.
But not all stocks in the US are overvaluedIt is true that the large US tech companies have contributed substantially to the US stock market’s returns over the past 10 years. The FANMAG stocks now account for almost 24% of the S&P500 index. The total value of these six companies is almost $US8.5 trillion. Japan’s entire stock market is worth $US6 trillion. It is also noteworthy that Tesla’s market capitalisation (value) has added almost $US0.5 trillion to the S&P500 index since joining it in December 2020.
But some of these tech companies have been driven by sound fundamentals. Take Apple as an example. It took 38 years to reach a $US1 trillion market valuation in 2018. It only took 2 years to double its valuation to $US2 trillion (by mid-2020). It is currently worth more than $US2.6 trillion. A lot of this growth in value has been driven by underlying earnings (profit). Its trading on a PE ratio of 28 times which is not implausible. In fact, its relatively easy to justify.
It’s happening in Australia tooThere are signs of bubbles in different companies in Australia too.
Cloud-based accounting software provider, Xero has a market capitalised value of $22 billion. It reported a loss of $6.5 million for the first half of the 2022 financial year. Whilst Xero likes to talk about the lifetime value of a customer, investors are (or should be) more interested in profitability, of which Xero has none.
But also, there are large Australian companies that are trading at attractive multiples. BHP, for example, is trading at a forward PE ratio of only 12 times, which is very low. That is mainly because its share price has fallen sharply over recent months in line with the price of iron ore.
Australian property price bubble?According to Core Logic, the home value index has risen by 30% in Sydney over the 12 months to October 2021, 26% for Brisbane and almost 20% for Melbourne.
Whilst recent

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A financial advisor’s job is to develop a plan and help you implement that plan over many years, so that you achieve your financial and lifestyle goals. This includes navigating the inevitable changes in your circumstances, markets, investments and so forth – knowing when to stick to the plan and when to alter it.
Achieving your financial and lifestyle goals is an incredibly valuable outcome. Therefore, it is very likely that financial advisory fees will be a small fraction of that value.
Just like in any profession, the best people are typically in high demand. Of course, when selecting an advisor, you definitely want the best that you can afford.
Shrinking pool of financial advisorsAccording to research house, Rainmaker, approximately 30% (9,000) of financial advisors have left the industry since 2018. There are now less than 20,000 financial advisors in Australia.
There have been lots of legislative changes over this time that have prompted financial advisors to change careers or retire, including the banning of commissions, mandatory tertiary education standards(all financial advisors must pass a mandatory exam before 1 January 2022), increasing insurance costs and ever-increasing compliance obligations and so on.
The changes that have been implemented over the past few years have contributed towards lifting the bar (professionalism) for financial advisors. Of course, this is a good thing for the industry and its clients. But the result is that there is a growing shortage of financial advisors in Australia.
It’s the person, not that business that mattersA financial advisor and their client have a very personal relationship. This relationship is based on a high level of trust. Therefore, it is critical that clients find an advisor they feel comfortable with. Of course, there’s a personal/emotional element to this.
Second to trust is experience. Whilst it is possible to systemise some facets of the advice formulation process, what cannot be systemised or automated is experience. Experience is one of the most important and valuable benefits a financial advisor must share with you. Knowledge tells you what to do and experience tells you when and how to execute. The challenge is that experience isn’t scalable. There are no shortcuts to accumulating experience either.
An advisor that has been practising for 20 years is almost always going to be more valuable than an advisor with 2 years of experience.
Good advisors are rarer than good clientsThere’s a limit to the number of clients that any one financial advisor can look after. Usually, that limit is in the range of 100 to 200 clients. But, of course, it depends on the complexity of each client.
It is very important for an advisor to choose their clients carefully. Of course there are some obvious commercial reasons for this, but I feel the most important consideration relates to the allocation of the scarcest resource; time. There’s a limited amount of time to share with a limited amount of clients, so it’s important that we share our time with clients that could benefit the most.
The only reason I come to work each day is the personal satisfaction I receive from helping my clients. Therefore, if I work with clients that truly need my help, I maximise this satisfaction. It might seem altruistic, but the truth is that it is a selfish pursuit. Thankfully, my client and my interests are perfectly aligned.
I

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It is becoming increasingly difficult to buy an investment-grade house for under $1 million in Brisbane, Melbourne and Sydney. This begs the question; if your investment property budget is less than $1 million, where and how do you invest it?
Brisbane is becoming more difficultIn early August 2021, I presented an investment case for buying an investment-grade home in Brisbane. My wife and I subsequently followed this advice (I put my money where my mouth is) and we purchased an investment-grade house in the Brisbane suburb of Indooroopilly, which settled last month.
Whilst I am still very bullish about the Brisbane market, it is becoming more challenging to buy an investment-grade house for less than $1 million. Whilst it is still possible, it may not remain that way for long.
House budgets must be substantially more than $1 million in Melbourne and SydneyIt will not come as a surprise that you need a budget of substantially more than $1 million to buy an investment-grade house in Melbourne and Sydney.
In Melbourne, you need more than $1.3 million and approaching $2 million and above in Sydney.
Of course, it is possible to find houses in these capital cities for less than $1 million, but these tend to be in non-investment-grade locations and/or have unacceptable compromises. That is, they are not deemed investment-grade assets.
Remember, there’s never a good reason to invest in a sub-standard quality asset. Your long-term investment returns will be directly related to the quality of your investment assets. You cannot expect good investment returns from an average (or below) quality asset.
A villa unit could be good optionVilla units are typically small houses that share the same block of land e.g. there might be 3 to 4 on the same block. They are often single-level homes that were constructed in the 1960’s or later. Typically, owners share some amenities, such as driveways, but mostly the owner has a direct interest in, and control of, their parcel of land.
Villa units are often prevalent in impaired locations such as busy main roads or secondary suburbs. However, it is possible to find some investment-grade villa units in blue-chip suburbs, but you must select judiciously. Villa units are scarce assets, particularly in blue-chip suburbs – property developers don’t build any more as they are not economical (higher density apartments are more economical).
It may be possible to buy an investment-grade villa unit in Melbourne for close to $1 million, but it is becoming more challenging. Villa units are not that common in Brisbane in established suburbs.
Investment-grade apartments in MelbourneArguably, the sub-$1-million property investment option that represents that best value is investment-grade apartments in Melbourne.
In October 2020, I wrote this report investigating the performance of investment grade apartments, particularly in Melbourne. I have taken the opportunity to update this report. This update can be found in Section 1 as an addendum. You can download a copy by clicking below.
<< Download report here >>
There are three predominate reasons I believe investment-grade apartments in Melbourne represent excellent future growth prospects which I summarise below:
1. Apartments hav

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The topic of rising inflation and its potential impact on interest rates has been dominating the financial press over the past few weeks. The bond markets expect that higher inflation readings will force central banks to raise interest rates.
It’s my opinion that higher inflation is likely to be temporary. And it’s also useful to remember that “markets” (and popular opinion) are not always right. Bond markets priced in higher inflation in February 2021 but eventually normalised after a few months.
A quick economics lesson: why does inflation lead to higher interest rates?Inflation is a measure of rising costs. Inflation is measures by the ABS using a basket of goods and services. High inflation is bad for an economy because it erodes purchasing power, increases uncertainty and can have a negative impact the value of a country’s currency.
A key role of the RBA is to manage inflation so that it remains inside its targeted 2% to 3% band. It does that by changing the cash interest rate (currently 0.10%). Increasing interest rates, reduces spending (because the business and private sector must direct more money towards interest costs) and therefore reduces demand for goods and services which cools price increases.
Therefore, if markets expect that high inflation will persist, they price in that interest rates will increase, which negatively impacts the value of existing bonds, particularly if the coupon (interest rate) is fixed. This has been happening since August 2021 i.e. bond value have been falling.
What’s causing higher inflation?As announced by the ABS last week, Australia’s inflation is 3% for the year ended September 2021, which is at the top end of the RBA’s target band. It was slightly less than expected (3.1%) and lower than last quarters annualised reading of 3.8%.
This time last year, inflation was less than 1%, so what has happened since then? The chart below sets out how prices have changes over the past year. Five categories have risen by more than 2% over the past year being transport, furnishings, health, alcohol and tobacco and recreation.
See chart here.
1. Transport – driven mainly by the rebound in the oil price. This time last year, oil was trading at around $40 per barrel, mainly because most of the world was in lockdown. Oil has since recovered and is currently trading at over $80 per barrel, which is closer to the long-term average price. Its unlikely the oil price will continue to rise, certainly not at the same pace.2. Furnishings – the cost of furnishings have been driven by unusually high demand and supply shortages (supply chain disruptions).3. Alcohol and tobacco – the main contributor were tobacco prices due to increase in government excise and customs duty in 2020.4. Health – these price rises have been mainly driven by health insurance premiums.5. Recreation and culture – price increases were mainly driven by domestic holiday travel and accommodation due to the closure of international borders.
It is likely that inflation is transitoryFrom a review of the above, it becomes clear that inflation has been driven by some unique events which are unlikely to persist. The only exception may be health insurance premiums, which seem to increase each year.
The Covid pandemic has caused several issues:§ Supply chain disruption: The China Containerised Fr

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