1 00:00:05,920 --> 00:00:07,960 Speaker 1: Welcome to Fearing Greed, Q and A. Will we ask 2 00:00:08,039 --> 00:00:11,840 Speaker 1: an answer questions about business, investing, economics, politics and more. 3 00:00:11,880 --> 00:00:15,120 Speaker 1: I'm Sean Aylmer. Yesterday the Reserve Bank increased the official 4 00:00:15,160 --> 00:00:18,200 Speaker 1: cash rate by twenty five basis points to four point 5 00:00:18,280 --> 00:00:20,799 Speaker 1: one percent. That means your mortgage rate is kind of 6 00:00:21,160 --> 00:00:24,520 Speaker 1: probably above six percent now the standard variable's high sixers. 7 00:00:24,840 --> 00:00:28,080 Speaker 1: It's the second rate hike in a row. But while 8 00:00:28,160 --> 00:00:31,000 Speaker 1: last time the decision was unanimous, this time it was 9 00:00:31,080 --> 00:00:33,960 Speaker 1: much closer, with the board split five to four. My 10 00:00:34,040 --> 00:00:38,760 Speaker 1: guest today is Diana Messina, Deputy Chief Economist at AMP. Diana, 11 00:00:38,760 --> 00:00:40,360 Speaker 1: welcome back to Fearing Greed Q and A. 12 00:00:41,040 --> 00:00:42,480 Speaker 2: Hey, Sean, always good to be here. 13 00:00:43,600 --> 00:00:46,360 Speaker 1: A split decision, that's like the first time we can 14 00:00:46,400 --> 00:00:49,000 Speaker 1: say that, isn't It's quite exciting. But what does it mean? 15 00:00:49,440 --> 00:00:51,519 Speaker 3: Well, it's actually the second time because we had the 16 00:00:51,560 --> 00:00:55,000 Speaker 3: other one last July when the market was priced for 17 00:00:55,040 --> 00:00:57,600 Speaker 3: a cut and they decided to hold. And the main 18 00:00:57,680 --> 00:01:01,920 Speaker 3: reason for the split was, as Michelle Bullock said yesterday, 19 00:01:02,760 --> 00:01:06,160 Speaker 3: that it was a question of timing rather than direction. 20 00:01:06,480 --> 00:01:10,360 Speaker 3: So the way that the RBA is selling this, I 21 00:01:10,400 --> 00:01:14,400 Speaker 3: suppose to the market is basically saying that most of 22 00:01:14,400 --> 00:01:18,280 Speaker 3: the board members had been expecting a rate another rate 23 00:01:18,400 --> 00:01:21,800 Speaker 3: rise after the February one at some stage, and some 24 00:01:21,920 --> 00:01:25,000 Speaker 3: obviously that voted for the hike yesterday, thought that it 25 00:01:25,040 --> 00:01:27,679 Speaker 3: should come in March, and others wanted to wait for 26 00:01:27,720 --> 00:01:30,039 Speaker 3: a bit longer to see how the developments in the 27 00:01:30,040 --> 00:01:31,040 Speaker 3: Middle East played out. 28 00:01:31,160 --> 00:01:33,440 Speaker 2: I mean, of course, it's hard to tell whether we. 29 00:01:33,400 --> 00:01:35,679 Speaker 3: Would have had a rate rise in March if we 30 00:01:35,720 --> 00:01:39,360 Speaker 3: didn't have the situation in the Middle East. We can't 31 00:01:39,400 --> 00:01:41,640 Speaker 3: really say that, But I think that it's probably pushed 32 00:01:41,680 --> 00:01:44,080 Speaker 3: some board members to call for an earlier hike then 33 00:01:44,080 --> 00:01:45,000 Speaker 3: they would have otherwise. 34 00:01:45,800 --> 00:01:47,600 Speaker 1: Do you think it could have pushed some board members 35 00:01:47,640 --> 00:01:48,400 Speaker 1: to say hold on? 36 00:01:50,160 --> 00:01:52,040 Speaker 2: Well, if I was a board member, I probably would 37 00:01:52,080 --> 00:01:52,880 Speaker 2: have said hold on. 38 00:01:53,080 --> 00:01:55,840 Speaker 3: But you know, I'll wait for my name to go 39 00:01:55,920 --> 00:01:57,960 Speaker 3: in the RBA board room before. 40 00:01:57,720 --> 00:02:00,680 Speaker 2: I tell them my opinion. 41 00:02:01,600 --> 00:02:03,720 Speaker 3: I mean, look, the war in the Middle East is 42 00:02:03,760 --> 00:02:07,000 Speaker 3: a really is putting a difficult It is putting all 43 00:02:07,080 --> 00:02:10,280 Speaker 3: central banks in difficult position at the moment, because what 44 00:02:10,360 --> 00:02:13,720 Speaker 3: central banks are really worried about is that inflation expectations 45 00:02:13,760 --> 00:02:16,560 Speaker 3: are going to increase too much and that basically high 46 00:02:16,639 --> 00:02:20,560 Speaker 3: oil prices will seek through into all other parts of 47 00:02:20,720 --> 00:02:24,600 Speaker 3: the consumption basket, and that's what they're really concerned about. 48 00:02:24,600 --> 00:02:27,440 Speaker 3: They probably have some PTSD as well, after the seven 49 00:02:27,520 --> 00:02:31,359 Speaker 3: years experience with oil prices, maybe some of them. And 50 00:02:31,400 --> 00:02:36,120 Speaker 3: of course during COVID we had this very high increases 51 00:02:36,160 --> 00:02:39,600 Speaker 3: to inflation, which initially was due to supply reasons, and 52 00:02:39,639 --> 00:02:42,000 Speaker 3: that seet through into so many different parts of consumption. 53 00:02:42,080 --> 00:02:45,360 Speaker 3: I think that that's causing them to be the little 54 00:02:45,360 --> 00:02:48,320 Speaker 3: bit more concerned about inflation than perhaps they would have 55 00:02:48,360 --> 00:02:50,520 Speaker 3: been if we had another supply shock. 56 00:02:51,000 --> 00:02:53,519 Speaker 1: Even without the what's going on in the Middle East, though, 57 00:02:53,639 --> 00:02:59,160 Speaker 1: they seem to think that the private spending is higher 58 00:02:59,160 --> 00:03:00,560 Speaker 1: than what they thought of going to be, and we 59 00:03:00,680 --> 00:03:05,400 Speaker 1: kind of knew that anyway. Business investment they highlighted yesterday. 60 00:03:05,720 --> 00:03:08,320 Speaker 1: How much do you think they're worried about that, Well, 61 00:03:08,320 --> 00:03:10,000 Speaker 1: actually how much they worried, But I'm more so interested 62 00:03:10,000 --> 00:03:11,920 Speaker 1: in what they said about consumer spending, because they weren't 63 00:03:11,960 --> 00:03:13,640 Speaker 1: quite as upbeat on consumer spending. 64 00:03:14,040 --> 00:03:17,440 Speaker 3: Yeah, so that goes to the breakdown of the GDP data. 65 00:03:17,480 --> 00:03:20,200 Speaker 3: I mean, everyone always thinks the GDP sort of this 66 00:03:20,240 --> 00:03:22,280 Speaker 3: backward looking a release, and I guess it is because 67 00:03:22,280 --> 00:03:24,360 Speaker 3: we get it so many months after the quarters ended. 68 00:03:24,400 --> 00:03:27,200 Speaker 3: But it's really the only piece of economic data that 69 00:03:27,200 --> 00:03:29,480 Speaker 3: we get which gives your really good breakdowns to every 70 00:03:29,520 --> 00:03:32,960 Speaker 3: single part of the economy. And that data showed us 71 00:03:32,960 --> 00:03:36,480 Speaker 3: that actually, consumer spending in the December quarter of twenty 72 00:03:36,520 --> 00:03:40,040 Speaker 3: twenty five was a bit softer than the RBA was forecasting, 73 00:03:40,640 --> 00:03:43,320 Speaker 3: but other components were a little bit stronger, So overall 74 00:03:43,480 --> 00:03:48,360 Speaker 3: growth looked good and okay above the RBA's expectations actually, 75 00:03:48,680 --> 00:03:51,640 Speaker 3: but the consumer was a touch weaker. So it's that 76 00:03:51,760 --> 00:03:54,920 Speaker 3: breakdown of differences in categories, and some of the other 77 00:03:55,000 --> 00:03:58,000 Speaker 3: monthly consumer data hasn't actually been too strong either. The 78 00:03:58,040 --> 00:04:01,880 Speaker 3: monthly household spending MEDICATA has been softer lately. But I 79 00:04:01,920 --> 00:04:04,119 Speaker 3: suppose from the Reserve Bank's point of view, we've still 80 00:04:04,120 --> 00:04:07,360 Speaker 3: got a pretty strong labor market, growth is running above capacity, 81 00:04:07,480 --> 00:04:10,960 Speaker 3: and inflation expectations arising. And that's probably how most of 82 00:04:10,960 --> 00:04:12,680 Speaker 3: the board members thought about it. 83 00:04:13,680 --> 00:04:17,880 Speaker 1: How much should we be worried about inflation expectations? 84 00:04:19,000 --> 00:04:23,080 Speaker 3: It's a really good question, actually, because I sort of think, well, 85 00:04:23,680 --> 00:04:24,760 Speaker 3: does the average. 86 00:04:24,440 --> 00:04:26,799 Speaker 2: Person think about inflation expectation? 87 00:04:26,839 --> 00:04:30,159 Speaker 3: You don't really think about it, I guess you just 88 00:04:30,200 --> 00:04:33,159 Speaker 3: sort of But the things that you do probably so 89 00:04:33,320 --> 00:04:34,039 Speaker 3: what you expect. 90 00:04:35,279 --> 00:04:37,560 Speaker 1: Yeah, yeah, yeah, that's exactly right, I think. 91 00:04:37,480 --> 00:04:41,720 Speaker 3: And so the central Bank's probably worried. If people are 92 00:04:41,720 --> 00:04:46,120 Speaker 3: thinking that petrol's going to keep at two dollars twenty, 93 00:04:46,240 --> 00:04:48,480 Speaker 3: they're going to ask for a wage rise, and businesses 94 00:04:48,480 --> 00:04:52,240 Speaker 3: are going to be pricing in higher prices, maybe making 95 00:04:52,279 --> 00:04:57,000 Speaker 3: an excuse, using oil prices as an excuse maybe and 96 00:04:57,240 --> 00:05:00,880 Speaker 3: maybe not as well, but you sort of consumers and 97 00:05:00,920 --> 00:05:04,400 Speaker 3: businesses will adjust their behavior based on what they are 98 00:05:04,400 --> 00:05:09,240 Speaker 3: extrapolating from today. Actually, when you track inflation expectations that 99 00:05:09,320 --> 00:05:13,000 Speaker 3: consumers have and fuel prices, they have a really pretty 100 00:05:13,000 --> 00:05:17,599 Speaker 3: close relationship. So I think because people see fuel prices 101 00:05:17,720 --> 00:05:19,880 Speaker 3: all the time of the game. I mean, I presently don't, 102 00:05:19,880 --> 00:05:22,760 Speaker 3: but I guess I don't drive that much on average, 103 00:05:23,240 --> 00:05:27,920 Speaker 3: but people often relate fuel to other parts of their 104 00:05:27,920 --> 00:05:31,280 Speaker 3: spending basket. So that's probably what they're worried about right now. 105 00:05:31,800 --> 00:05:34,279 Speaker 1: What is will there be another raid hike in May? 106 00:05:34,360 --> 00:05:37,400 Speaker 1: Because ahead of yesterday it seemed like many people thought 107 00:05:37,760 --> 00:05:41,760 Speaker 1: definitely March, probably May is that likely to happen. 108 00:05:43,080 --> 00:05:44,920 Speaker 2: I think it's fifty to fifty right now. 109 00:05:45,040 --> 00:05:47,560 Speaker 3: Actually, that's close to the market pricing as well the 110 00:05:47,640 --> 00:05:51,039 Speaker 3: last time I checked, And it basically just comes down 111 00:05:51,040 --> 00:05:53,560 Speaker 3: to that monthly inflation data and the quarterly which we 112 00:05:53,640 --> 00:05:57,440 Speaker 3: get at the end of April. So we don't have 113 00:05:57,480 --> 00:05:59,760 Speaker 3: a meeting in April. The next meeting is in May. 114 00:06:00,080 --> 00:06:03,960 Speaker 3: I mean, if the underlying inflation figures are going to 115 00:06:04,000 --> 00:06:07,680 Speaker 3: be higher than the RBA has been expecting, we may 116 00:06:07,720 --> 00:06:10,839 Speaker 3: see another rate rise, unfortunately. I mean, our view at 117 00:06:10,880 --> 00:06:14,039 Speaker 3: AMP has been that inflation would moderate a little bit 118 00:06:14,320 --> 00:06:16,840 Speaker 3: below the RBA's forecast. I mean, obviously that view is 119 00:06:16,920 --> 00:06:20,240 Speaker 3: quite challenged at the moment, but oil prices may not 120 00:06:20,279 --> 00:06:23,440 Speaker 3: stay at these current levels for the rest of the quarter, 121 00:06:23,480 --> 00:06:27,000 Speaker 3: I mean, all for another one or two months. It's 122 00:06:27,000 --> 00:06:29,479 Speaker 3: been three weeks so far and it's only really been 123 00:06:29,640 --> 00:06:31,640 Speaker 3: like a week and a half when oil prices have 124 00:06:31,720 --> 00:06:34,920 Speaker 3: increased a lot, So it comes down to that. I mean, 125 00:06:35,120 --> 00:06:38,880 Speaker 3: it also depends on how much of the headline increased 126 00:06:38,880 --> 00:06:42,240 Speaker 3: the prices seeped through into the underlying I mean, you'd 127 00:06:42,279 --> 00:06:44,279 Speaker 3: sort of expect for the March quarter you wouldn't really 128 00:06:44,279 --> 00:06:47,719 Speaker 3: see much of a seep through into the underlying figures. 129 00:06:48,240 --> 00:06:50,520 Speaker 3: But I think it just comes down to waiting for 130 00:06:50,560 --> 00:06:54,440 Speaker 3: those numbers unfortunately, and even quite a small miss on 131 00:06:54,520 --> 00:06:58,239 Speaker 3: the upside, Like say we get we're expecting a point 132 00:06:58,240 --> 00:06:59,840 Speaker 3: eight for the core at the moment, If we get 133 00:06:59,880 --> 00:07:03,400 Speaker 3: a point nine, well they'll probably hike. So it's sort 134 00:07:03,400 --> 00:07:06,240 Speaker 3: of you don't you're not giving yourself much bandwidth to 135 00:07:06,320 --> 00:07:09,120 Speaker 3: get to get it right or wrong. So it's going 136 00:07:09,160 --> 00:07:11,760 Speaker 3: to be a pretty close decision. Maybe another split split 137 00:07:11,840 --> 00:07:15,120 Speaker 3: board again. And also just to add as well, we 138 00:07:15,160 --> 00:07:18,080 Speaker 3: also don't know the demand side when we get to May, 139 00:07:18,200 --> 00:07:22,000 Speaker 3: so say the war in the Middle East is still ongoing, 140 00:07:22,240 --> 00:07:26,000 Speaker 3: and we sort of get signs that will demand may 141 00:07:26,040 --> 00:07:30,160 Speaker 3: actually be crushed, Global growth might actually slow, maybe we 142 00:07:30,240 --> 00:07:32,760 Speaker 3: get a blow up in the private credit market, or 143 00:07:32,800 --> 00:07:35,000 Speaker 3: you know, we get some sort of banking system problem 144 00:07:35,040 --> 00:07:40,000 Speaker 3: because of the demand side, that will probably trump that 145 00:07:40,400 --> 00:07:44,560 Speaker 3: would probably trump any other of the inflation data. So 146 00:07:45,080 --> 00:07:47,960 Speaker 3: it comes down to the situation in the Middle East 147 00:07:47,960 --> 00:07:48,360 Speaker 3: as well. 148 00:07:49,520 --> 00:07:52,360 Speaker 1: Okay, just on communication from the Reserve Bank. We had 149 00:07:52,520 --> 00:07:56,080 Speaker 1: Deputy Governor Andrew Houser on a podcast the other day 150 00:07:56,160 --> 00:07:58,840 Speaker 1: which many people listen to and and thought, oh, actually 151 00:07:58,840 --> 00:08:01,440 Speaker 1: they are going to raise straits in March now. Michelle 152 00:08:01,440 --> 00:08:04,040 Speaker 1: Bullock yesterday came out and said, well, no, we didn't 153 00:08:04,080 --> 00:08:05,960 Speaker 1: mean that was done weeks ago. We didn't actually mean 154 00:08:06,000 --> 00:08:09,120 Speaker 1: to intend to do anything with Then we have a 155 00:08:09,160 --> 00:08:12,320 Speaker 1: four or five split. Do you think this new world 156 00:08:12,400 --> 00:08:15,119 Speaker 1: of great communications from the Reserve Bank is actually making 157 00:08:15,200 --> 00:08:16,400 Speaker 1: things better or not? 158 00:08:19,880 --> 00:08:22,480 Speaker 3: You have to do I mean it's I have to 159 00:08:22,520 --> 00:08:26,000 Speaker 3: give the RBA credit that they are operating in really 160 00:08:26,360 --> 00:08:30,480 Speaker 3: in really difficult times. They are more data dependent than 161 00:08:30,520 --> 00:08:34,360 Speaker 3: ever because the global economy is in a very fluid 162 00:08:34,600 --> 00:08:37,640 Speaker 3: situation at the moment, and are there are two sided risks. 163 00:08:38,000 --> 00:08:41,160 Speaker 3: We are more tied to political decisions in terms of 164 00:08:41,200 --> 00:08:43,840 Speaker 3: the impact of the economy than ever. So it is 165 00:08:43,920 --> 00:08:47,240 Speaker 3: difficult for the RBA to operate in these times. And 166 00:08:47,640 --> 00:08:50,240 Speaker 3: if we think about other major central banks as well, 167 00:08:50,520 --> 00:08:56,080 Speaker 3: there's been split boards recently, there's been communication issues at 168 00:08:56,120 --> 00:08:59,040 Speaker 3: other central banks as well. I think the RBA is 169 00:08:59,120 --> 00:09:02,640 Speaker 3: doing a good job, and Michelle Bullock is doing a 170 00:09:02,640 --> 00:09:05,440 Speaker 3: great job, and you know, I sort of have to 171 00:09:05,440 --> 00:09:08,920 Speaker 3: give them credit given the difficult position that they're in, 172 00:09:08,960 --> 00:09:11,360 Speaker 3: and also the fact that trying to explain that they 173 00:09:11,360 --> 00:09:15,800 Speaker 3: do only have one tool via interest rates to impact inflation, 174 00:09:16,040 --> 00:09:19,160 Speaker 3: and inflation targeting has worked in the past few decades 175 00:09:19,200 --> 00:09:21,040 Speaker 3: so I think it will continue to work in the future. 176 00:09:21,760 --> 00:09:23,439 Speaker 1: Danna, thanks for talking to fear and greed. 177 00:09:23,720 --> 00:09:24,240 Speaker 2: Thanks Sean. 178 00:09:24,800 --> 00:09:27,520 Speaker 1: That was Diana Messina, Deputy Chief Economist at a MP. 179 00:09:27,760 --> 00:09:30,120 Speaker 1: I'm Sean Almer and this is fearing greed Q and 180 00:09:30,200 --> 00:09:30,240 Speaker 1: a