Tower Investments worries about inflation, Australia investments

Tower Investments is getting nervous about inflation and about the health of the Australian economy.

At the company's quarterly briefing today, chief executive Sam Stubbs said Tower thought inflation was going to arrive sooner and go higher than markets were expecting.

Central bankers were now more divided about the prospects for inflation than they had been for a long time. They were debating whether they should be preparing for inflation and raising interest rates, or keep going for growth a bit longer.

For Tower that was a precursor to a change of view by the central banks, meaning interest rates around the world were likely to go up sooner rather than later, Mr Stubbs said.

He expected most western countries would choose to try to inflate their way out of their debt problems.

As the inflationary head of steam built up, fixed interest investments should be for no more than two years, while home buyers should now be taking out fixed, longer term mortgages, Mr Stubbs said.

Meanwhile, developments with the economy in this country were positive, while the Australian market had become "severely imbalanced."

"Almost a wall of money" was about to arrive in New Zealand, much of it from reinsurers paying out for the Christchurch earthquake, at the same time as export markets were exceptionally strong.

Tower also thought the labour market in this country was tighter than many people thought, particularly in Auckland. A tightening of the labour market would move through into wages, and would be good news for the housing market, Mr Stubbs said.

In Australia the amount of capital spending going into mining infrastructure was a warning sign.

The mining industry was famous for underspending when it should be investing, and overspending when it should not. Tower thought that pattern would be repeated in the current cycle.

Many commentators kept pointing to the demand from China for the output of Australia's mines, Mr Stubbs said.

But he related a comment from an owner of manufacturing businesses on the coast of China who said recently the West did not realise it was now as expensive to manufacture on the Chinese coast as nearly anywhere else.

If the China story was in question, then the Australian commodities story had to be questioned, Mr Stubbs said.

On Christchurch, Tower was bullish on the city's long term future as it recovered from the damage done by earthquakes.

Tower did not think the reason for the existence of Christchurch had diminished at all, and it wanted to expand its mall in the suburb of Merivale, Mr Stubbs said.

Retail space in Christchurch was now scarce, and some of those who were open were doing exceptionally well.