This is part 1 of a two-part special.
After two years of volatility and uncertainty, you might have thought at the beginning of 2022 that we were due (or overdue) for a calmer, more predictable year ahead.
But as this year comes to a close, we all now know that 2022 has proved to be anything but. Here are some of the biggest surprises that caught us off guard over the past 12 months:
1. A Lowe blow
Despite stating for much of last year that the Reserve Bank (RBA) was not expecting to raise interest rates until 2024, Philip Lowe was forced to go back on what many Australians viewed as a promise back in May.
The RBA lifted the cash rate by 25 basis points (bps) to 0.35 per cent just weeks before the federal election, its first hike in over a decade, marking the start of a tightening cycle that has continued for eight consecutive meetings (at least so far).
Subsequently, Dr Lowe apologised to anyone who acted on the earlier forecast (the one where he insisted rates would remain untouched until 2024) and the RBA pledged to limit its forward guidance on rates in the future.
Next year, we’ll find out whether the independent RBA review delivers any surprises regarding the central bank’s monetary policy arrangements, performance, governance and culture.
2. Inflation keeps inflating
At the end of April, six days before the RBA began hiking rates, the Australian Bureau of Statistics (ABS) informed us that inflation had reached its highest level since the introduction of GST.
The consumer price index (CPI) soared by 5.1 per cent in the first quarter, up from 3.5 per cent in the final quarter of 2021, with one major shock being the 35.1 per cent increase for automotive fuel amid Russia’s invasion of Ukraine.
Inflation then went on to reach another post-GST high of 6.1 per cent in the second quarter before recording the largest increase since 1990 at 7.3 per cent in the third quarter.
It remains to be seen whether CPI is still moving upwards, as the final inflation data for 2022 is due to be released in late January next year. The RBA’s latest forecasts (if you still trust them) have inflation peaking at 8.0 per cent in the fourth quarter.
3. Labor’s frank changes
Hearing “Labor” and “franking credit changes” in the same sentence may bring back bad memories for some investors, but that’s exactly what emerged again this year.
In its first budget in October, the Albanese government unexpectedly announced a plan to “improve the integrity of the tax system” by aligning the tax treatment of off-market share buybacks with the treatment of on-market buybacks.
Now, when a listed public company undertakes an off-market buyback, no part of the purchase price in response to the buyback will be taken to be a dividend.
The measure, which is expected to save the government $550 million over four years, was immediately criticised as blindsiding the market and followed a previous proposal to add distributions funded by capital raising to the list of distributions that are unfrankable.
Regardless, Minister for financial services Stephen Jones dismissed the criticism and claimed that “ordinary mum and dad investors will continue to receive their franked dividends”.
