1 00:00:04,019 --> 00:00:07,650 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. It's been 2 00:00:07,650 --> 00:00:10,020 Sean Aylmer: a big 24 hours for the economy with the release 3 00:00:10,020 --> 00:00:14,250 Sean Aylmer: for the March quarter inflation data. Headline annual inflation growth 4 00:00:14,250 --> 00:00:17,099 Sean Aylmer: slowed to 7% in the first quarter from 7. 8%, 5 00:00:17,730 --> 00:00:20,730 Sean Aylmer: that was slightly above expectations. Core inflation came in at 6 00:00:20,730 --> 00:00:25,320 Sean Aylmer: 6.6%, which was below the expected reading of 6. 7% 7 00:00:25,620 --> 00:00:28,950 Sean Aylmer: and down from 6. 9% in the December quarter. So 8 00:00:28,950 --> 00:00:30,780 Sean Aylmer: what does it mean now for interest rates in the 9 00:00:30,780 --> 00:00:33,540 Sean Aylmer: Reserve Bank board meeting next week? Gareth Aird is Commonwealth 10 00:00:33,540 --> 00:00:36,750 Sean Aylmer: Bank's Head of Australian Economics. Gareth, welcome back to Fear 11 00:00:36,750 --> 00:00:37,260 Sean Aylmer: and Greed. 12 00:00:37,650 --> 00:00:39,060 Gareth Aird: Good day, Sean. It's nice to be back. 13 00:00:39,570 --> 00:00:41,519 Sean Aylmer: So any surprises yesterday? 14 00:00:41,820 --> 00:00:44,880 Gareth Aird: Look, the numbers only came in a little bit off 15 00:00:44,940 --> 00:00:47,699 Gareth Aird: where we had them pegged. So the headline CPI increased 16 00:00:47,700 --> 00:00:49,920 Gareth Aird: by slightly more than we had on the quarter. We 17 00:00:49,920 --> 00:00:53,430 Gareth Aird: thought 1. 3%, came in at 1. 4%, albeit we 18 00:00:53,430 --> 00:00:55,770 Gareth Aird: had the annual rate at 7%, that's where it landed. 19 00:00:55,770 --> 00:00:58,950 Gareth Aird: So on that measure, very similar to what we had 20 00:00:58,950 --> 00:01:02,310 Gareth Aird: expected and most of the components came in line or 21 00:01:02,400 --> 00:01:05,010 Gareth Aird: or thereabouts with what we had, and most analysts have 22 00:01:05,010 --> 00:01:07,050 Gareth Aird: been given a helping hand this time around because we 23 00:01:07,050 --> 00:01:09,750 Gareth Aird: get the monthly CPI before the quarterly and we had 24 00:01:09,750 --> 00:01:12,300 Gareth Aird: two months worth of the three months of the quarter. 25 00:01:12,300 --> 00:01:15,120 Gareth Aird: So that's why most analysts were pretty close to the 26 00:01:15,120 --> 00:01:18,840 Gareth Aird: actual outcome. Where I guess the bigger surprise came though 27 00:01:18,840 --> 00:01:21,959 Gareth Aird: was on the true mean, which is the RBA's preferred 28 00:01:21,959 --> 00:01:25,980 Gareth Aird: measure of underlying inflation. That increased by 1. 2% on 29 00:01:25,980 --> 00:01:27,990 Gareth Aird: the quarter, was a little bit where we in the 30 00:01:27,990 --> 00:01:31,860 Gareth Aird: market were expecting, which is 1. 4%. They're not big 31 00:01:31,860 --> 00:01:34,890 Gareth Aird: misses in the scheme of things, but just slightly off 32 00:01:34,890 --> 00:01:37,020 Gareth Aird: from where we had it penciled in. 33 00:01:37,740 --> 00:01:40,740 Sean Aylmer: So most of us talk about things like annualized inflation, 34 00:01:40,740 --> 00:01:43,980 Sean Aylmer: 7%, et cetera. You're talking about quarterly inflation. What does 35 00:01:43,980 --> 00:01:47,130 Sean Aylmer: that show in terms of quarter on quarter on quarter? 36 00:01:47,310 --> 00:01:51,059 Sean Aylmer: Does it show that within that 7%, or the core 37 00:01:51,060 --> 00:01:55,500 Sean Aylmer: inflation at 6.6%, things were slower in the March quarter 38 00:01:55,500 --> 00:01:56,700 Sean Aylmer: than previous quarters? 39 00:01:57,390 --> 00:02:01,560 Gareth Aird: Yes, they do. In fact, if you annualized the quarterly 40 00:02:01,560 --> 00:02:04,050 Gareth Aird: number, so in other words you take 1. 2% and 41 00:02:04,050 --> 00:02:07,260 Gareth Aird: you annualize that, you get a number a lot less 42 00:02:07,320 --> 00:02:10,830 Gareth Aird: than 6.6%. So what you can then infer is that 43 00:02:10,889 --> 00:02:13,680 Gareth Aird: that quarter on quarter rate was not as strong as 44 00:02:13,680 --> 00:02:17,010 Gareth Aird: the previous few quarters that we've had. So the rate 45 00:02:17,010 --> 00:02:20,220 Gareth Aird: of inflation is slowing, it's a good news story, it'll 46 00:02:20,220 --> 00:02:21,870 Gareth Aird: still take a while to get back to the Reserve 47 00:02:21,870 --> 00:02:24,269 Gareth Aird: Bank's target. And part of that is because of those 48 00:02:24,570 --> 00:02:26,880 Gareth Aird: bigger numbers that are sitting in the annual calculation that 49 00:02:26,880 --> 00:02:29,730 Gareth Aird: have got to drop out. But the news was overall, 50 00:02:29,730 --> 00:02:32,490 Gareth Aird: I think pretty good given we knew inflation is still 51 00:02:32,490 --> 00:02:35,220 Gareth Aird: stronger than desired in the economy, and it doesn't just 52 00:02:35,220 --> 00:02:38,970 Gareth Aird: drop overnight, but directionally we're heading the right way. I 53 00:02:38,970 --> 00:02:41,250 Gareth Aird: think where it gets a bit interesting for the Reserve 54 00:02:41,250 --> 00:02:44,639 Gareth Aird: Bank is compositionally having a look at inflation. And what 55 00:02:44,639 --> 00:02:47,130 Gareth Aird: we're seeing is a similar story in Australia to other 56 00:02:47,130 --> 00:02:50,400 Gareth Aird: countries is that we're getting some goods disinflation coming through, 57 00:02:50,820 --> 00:02:55,290 Gareth Aird: but services inflation has accelerated. Now, that is being largely 58 00:02:55,290 --> 00:02:58,470 Gareth Aird: driven by the spending patterns in the economy, which have 59 00:02:58,470 --> 00:03:00,150 Gareth Aird: sort of changed over the last year. They're kind of 60 00:03:00,150 --> 00:03:03,120 Gareth Aird: normalizing. We're spending more as a share of our spending 61 00:03:03,120 --> 00:03:05,580 Gareth Aird: on services relative to goods from this time a year 62 00:03:05,580 --> 00:03:07,500 Gareth Aird: ago. And that was because we were coming out of 63 00:03:07,500 --> 00:03:11,160 Gareth Aird: the pandemic. But I think that services component of inflation, 64 00:03:11,160 --> 00:03:15,270 Gareth Aird: which has stepped up to its highest rate since 2021, 65 00:03:15,630 --> 00:03:18,030 Gareth Aird: that's probably the thing that the RBA will still be 66 00:03:18,030 --> 00:03:19,080 Gareth Aird: a little bit concerned about. 67 00:03:19,830 --> 00:03:24,149 Sean Aylmer: Okay, so why does it matter the goods/ services split? 68 00:03:24,150 --> 00:03:26,730 Sean Aylmer: Why does it matter if we are paying, I mean 69 00:03:26,730 --> 00:03:29,489 Sean Aylmer: if there is inflation in services but not in goods? 70 00:03:30,570 --> 00:03:32,850 Gareth Aird: It's a good question, because you could say, " Well if 71 00:03:32,850 --> 00:03:36,210 Gareth Aird: these things sort of netting out, it's ultimately where the 72 00:03:36,240 --> 00:03:39,930 Gareth Aird: overall basket comes in that matters." The reason why economists 73 00:03:39,930 --> 00:03:42,330 Gareth Aird: will like to split it out between goods and services 74 00:03:42,360 --> 00:03:45,570 Gareth Aird: is that services inflation tends to be a little bit 75 00:03:45,570 --> 00:03:48,360 Gareth Aird: more sticky and it's a little bit less volatile than 76 00:03:48,360 --> 00:03:51,540 Gareth Aird: goods inflation. A lot of the goods inflation can actually 77 00:03:51,540 --> 00:03:54,840 Gareth Aird: come through changes in the cost of importing goods. So, 78 00:03:54,840 --> 00:03:57,060 Gareth Aird: that can be influenced by the Australian dollar. It can 79 00:03:57,060 --> 00:03:59,790 Gareth Aird: also be influenced by shipping costs, which we saw went 80 00:03:59,790 --> 00:04:02,220 Gareth Aird: up massively at the beginning of the pandemic and they 81 00:04:02,220 --> 00:04:06,960 Gareth Aird: obviously came back down. So you've had a deflationary impulse 82 00:04:07,020 --> 00:04:10,890 Gareth Aird: coming through on some components of input costs that then 83 00:04:10,890 --> 00:04:13,830 Gareth Aird: feed into goods, and the shipping one's the obvious example. 84 00:04:14,280 --> 00:04:18,990 Gareth Aird: With services though, the primary driver of services inflation tends 85 00:04:18,990 --> 00:04:22,740 Gareth Aird: to be wages growth and wages growth isn't particularly volatile. 86 00:04:22,950 --> 00:04:26,039 Gareth Aird: So that's why the Reserve Bank and economists will want 87 00:04:26,040 --> 00:04:29,010 Gareth Aird: to split up that basket, and then knowing that wages 88 00:04:29,010 --> 00:04:31,710 Gareth Aird: is a key driver of services, try and then make 89 00:04:31,710 --> 00:04:33,990 Gareth Aird: an assessment as to how sticky or not this inflation 90 00:04:33,990 --> 00:04:36,270 Gareth Aird: might be based on what's actually driving it. 91 00:04:36,990 --> 00:04:39,120 Sean Aylmer: Stay with me Gareth, we'll be back in a minute. 92 00:04:45,270 --> 00:04:48,060 Sean Aylmer: I'm speaking to Gareth Aird, Head of Australian Economics at 93 00:04:48,060 --> 00:04:52,349 Sean Aylmer: the Commonwealth Bank. Okay, so we put all that together. 94 00:04:52,470 --> 00:04:54,750 Sean Aylmer: What's it mean for next Tuesday when the Reserve Bank 95 00:04:54,750 --> 00:04:55,380 Sean Aylmer: Board meets? 96 00:04:55,500 --> 00:04:57,810 Gareth Aird: It's a good question. I think this is a really 97 00:04:57,810 --> 00:05:00,960 Gareth Aird: tough one to call. We thought that the Reserve Bank 98 00:05:00,960 --> 00:05:03,539 Gareth Aird: would be on hold in April, as it turned out 99 00:05:03,540 --> 00:05:05,460 Gareth Aird: to be the case that they were, and a lot 100 00:05:05,460 --> 00:05:07,800 Gareth Aird: of economists or the majority of economists were actually tipping 101 00:05:07,800 --> 00:05:10,950 Gareth Aird: a rate hike. This time around, I think the majority 102 00:05:10,950 --> 00:05:14,159 Gareth Aird: of economists are going to be tipping a pause and 103 00:05:14,160 --> 00:05:17,130 Gareth Aird: we've actually got the reserve bank increasing the cash rate. 104 00:05:17,520 --> 00:05:20,099 Gareth Aird: Now on one level you could say, why is that 105 00:05:20,130 --> 00:05:23,220 Gareth Aird: if underlying inflation, which is their preferred measure, has actually 106 00:05:23,220 --> 00:05:25,830 Gareth Aird: come in a little bit below consensus? And the Reserve 107 00:05:25,830 --> 00:05:28,830 Gareth Aird: Bank's numbers were basically on consensus. So that underlying rate 108 00:05:28,830 --> 00:05:31,620 Gareth Aird: of inflation has come in a little bit lower than 109 00:05:31,620 --> 00:05:35,370 Gareth Aird: they had forecast in February. I think what's important here 110 00:05:35,370 --> 00:05:38,279 Gareth Aird: is to consider that the Reserve bank still has a 111 00:05:38,279 --> 00:05:40,860 Gareth Aird: hiking bias. So even though they paused, they said in 112 00:05:40,860 --> 00:05:43,440 Gareth Aird: the minutes for the April board meeting that they still 113 00:05:43,440 --> 00:05:47,940 Gareth Aird: think that they will be on balance raising the cash rate again. The 114 00:05:47,940 --> 00:05:49,919 Gareth Aird: other thing too, which I think was quite interesting in 115 00:05:49,920 --> 00:05:52,620 Gareth Aird: the April board minutes is that the Reserve Bank spoke 116 00:05:52,620 --> 00:05:56,130 Gareth Aird: a lot about population growth and population growth coming in 117 00:05:56,130 --> 00:06:00,120 Gareth Aird: stronger than they'd been anticipating and that being an inflationary 118 00:06:00,120 --> 00:06:03,750 Gareth Aird: force. So you overlay that then with also the labor 119 00:06:03,750 --> 00:06:06,480 Gareth Aird: market data, which was still very strong in March. We 120 00:06:06,480 --> 00:06:07,860 Gareth Aird: got that out a couple of weeks ago and it 121 00:06:07,860 --> 00:06:10,589 Gareth Aird: showed that the unemployment rate had stayed at a 50 122 00:06:10,589 --> 00:06:13,650 Gareth Aird: year low of three and a half percent. Then we think 123 00:06:13,650 --> 00:06:16,229 Gareth Aird: that the RBA, in their own mind, still has another 124 00:06:16,230 --> 00:06:19,440 Gareth Aird: rate hike in the pipeline and that inflation rate today, 125 00:06:19,860 --> 00:06:22,440 Gareth Aird: as particularly on the core measure, just wasn't quite soft 126 00:06:22,440 --> 00:06:25,770 Gareth Aird: enough to see them on hold. And the Reserve Bank 127 00:06:25,770 --> 00:06:29,130 Gareth Aird: will also put a new set of updated economic forecasts 128 00:06:29,190 --> 00:06:33,060 Gareth Aird: out next week following the board meeting, and they're setting 129 00:06:33,060 --> 00:06:35,760 Gareth Aird: policy not just based on how the actual data's come 130 00:06:35,760 --> 00:06:38,490 Gareth Aird: in, but also their assessment for the outlook for inflation. 131 00:06:38,940 --> 00:06:41,700 Gareth Aird: And we think they won't end up downwardly revising their 132 00:06:41,730 --> 00:06:45,450 Gareth Aird: profile for inflation simply because the population growth story they 133 00:06:45,450 --> 00:06:48,510 Gareth Aird: think is a little bit inflationary and core inflation wasn't that 134 00:06:48,510 --> 00:06:51,450 Gareth Aird: much lower today than what they'd anticipated. And I think 135 00:06:51,450 --> 00:06:54,510 Gareth Aird: if they're not revising down their inflation forecasts and they 136 00:06:54,540 --> 00:06:57,390 Gareth Aird: have a hiking bias, then ultimately they'll deliver on that 137 00:06:57,390 --> 00:06:59,969 Gareth Aird: bias at the board meeting. I do think though it 138 00:06:59,970 --> 00:07:02,400 Gareth Aird: is a hard one to call. I think the reserve 139 00:07:02,400 --> 00:07:04,830 Gareth Aird: bank will debate the case whether or not to leave 140 00:07:04,830 --> 00:07:07,110 Gareth Aird: the cash rate on hold and I think you can 141 00:07:07,110 --> 00:07:08,669 Gareth Aird: make pretty good arguments one way or the other. 142 00:07:10,050 --> 00:07:13,050 Sean Aylmer: Are we getting to the end of this journey though, 143 00:07:13,050 --> 00:07:16,530 Sean Aylmer: Gareth? Are we getting to the point where rates won't 144 00:07:16,530 --> 00:07:17,430 Sean Aylmer: rise anymore? 145 00:07:18,630 --> 00:07:22,260 Gareth Aird: We're there or thereabouts. Our view is that the terminal 146 00:07:22,260 --> 00:07:24,390 Gareth Aird: rate, as in the peak of the cash rate for 147 00:07:24,390 --> 00:07:27,480 Gareth Aird: this cycle, is 3. 85%. So that's just one more 148 00:07:27,720 --> 00:07:31,050 Gareth Aird: 25 basis point rate hike. It could come next week, 149 00:07:31,230 --> 00:07:34,080 Gareth Aird: it could be June, it could even be August. I 150 00:07:34,080 --> 00:07:37,230 Gareth Aird: think in the short run, while the labor market data 151 00:07:37,230 --> 00:07:40,290 Gareth Aird: is still holding up quite well and the inflation rate 152 00:07:40,290 --> 00:07:43,320 Gareth Aird: is yet to get back even at an annualized quarterly 153 00:07:43,320 --> 00:07:46,740 Gareth Aird: rate within target, the RBA will maintain that hiking bias, 154 00:07:46,740 --> 00:07:50,070 Gareth Aird: but they've put an awful lot through in a short 155 00:07:50,070 --> 00:07:52,980 Gareth Aird: amount of time. And regardless of what they do from 156 00:07:52,980 --> 00:07:55,920 Gareth Aird: here, there are lots of home borrowers out there who 157 00:07:55,920 --> 00:07:58,710 Gareth Aird: will be rolling off very, very low fixed- rate home 158 00:07:58,710 --> 00:08:01,620 Gareth Aird: loans over the next 18 months and they'll be going 159 00:08:01,620 --> 00:08:04,800 Gareth Aird: on to a significantly higher either floating rate, or if 160 00:08:04,800 --> 00:08:06,870 Gareth Aird: they refix that rate, it'll be a lot higher. So 161 00:08:07,140 --> 00:08:09,300 Gareth Aird: regardless of what the RBA does from here, there's more 162 00:08:09,300 --> 00:08:11,940 Gareth Aird: tightening to come through. That should mean that they don't 163 00:08:11,940 --> 00:08:14,880 Gareth Aird: have too much more to go. As I said, one 164 00:08:15,060 --> 00:08:17,970 Gareth Aird: possibly, they could be done at 3.6, we're there or 165 00:08:17,970 --> 00:08:21,870 Gareth Aird: thereabouts, and I don't think it'll be too long actually 166 00:08:21,870 --> 00:08:24,690 Gareth Aird: before we end up talking about when will rates likely 167 00:08:24,690 --> 00:08:27,600 Gareth Aird: come down? Because if the rate of inflation continues to 168 00:08:27,600 --> 00:08:31,080 Gareth Aird: come down and the large impact of rate hikes continues 169 00:08:31,080 --> 00:08:34,500 Gareth Aird: to slow household spending, which will ultimately then act to 170 00:08:34,500 --> 00:08:37,020 Gareth Aird: bring the rate of inflation down, then at some point 171 00:08:37,200 --> 00:08:38,819 Gareth Aird: the Reserve Bank will say, " Well, we don't need a 172 00:08:38,820 --> 00:08:41,640 Gareth Aird: cash rate as deeply restrictive as it is right now 173 00:08:41,640 --> 00:08:44,010 Gareth Aird: because we don't want the unemployment rate to go up 174 00:08:44,010 --> 00:08:46,439 Gareth Aird: too much." The wages growth is coming in broadly in 175 00:08:46,440 --> 00:08:50,010 Gareth Aird: line with the inflation target. In the governor's own words, 176 00:08:50,010 --> 00:08:52,080 Gareth Aird: he wants to preserve as many of these gains in 177 00:08:52,080 --> 00:08:54,780 Gareth Aird: employment as possible and then they'll be looking to ease 178 00:08:54,780 --> 00:08:57,750 Gareth Aird: policy. I mean it sounds unusual to talk about potential 179 00:08:57,750 --> 00:08:59,760 Gareth Aird: rate cuts when we're still talking next week we think 180 00:08:59,760 --> 00:09:02,849 Gareth Aird: on balance they'll move the cash rate up, but we're 181 00:09:02,850 --> 00:09:04,920 Gareth Aird: there or thereabouts in terms of the top of the 182 00:09:04,920 --> 00:09:07,830 Gareth Aird: rate cycle. And that's certainly what the money markets are pricing. 183 00:09:09,179 --> 00:09:12,120 Sean Aylmer: How is the economy going generally? We talk about specific 184 00:09:12,179 --> 00:09:15,959 Sean Aylmer: economic figures and monthly Reserve Bank meetings and that, but if 185 00:09:15,960 --> 00:09:18,870 Sean Aylmer: you take a step back, it doesn't seem that the 186 00:09:18,870 --> 00:09:23,070 Sean Aylmer: local, the Australian economy is doing too badly, particularly when 187 00:09:23,070 --> 00:09:25,110 Sean Aylmer: you compare it to the US economy. 188 00:09:26,130 --> 00:09:29,940 Gareth Aird: Look, that's right. And if there was probably one economic 189 00:09:29,940 --> 00:09:32,340 Gareth Aird: statistic that you would ever point to at any point 190 00:09:32,340 --> 00:09:34,500 Gareth Aird: in time to get a pulse of how things are 191 00:09:34,500 --> 00:09:38,610 Gareth Aird: going for the collective economy, it'd be the unemployment rate 192 00:09:38,730 --> 00:09:41,520 Gareth Aird: and that's currently three and a half percent. So that is 193 00:09:41,580 --> 00:09:43,980 Gareth Aird: the key good news story in all of this as to 194 00:09:43,980 --> 00:09:46,920 Gareth Aird: what's happened in the post- pandemic world. And also the 195 00:09:46,920 --> 00:09:50,070 Gareth Aird: fact that wages growth has picked up and is basically 196 00:09:50,070 --> 00:09:52,770 Gareth Aird: coming in line with the inflation target where the RBA 197 00:09:52,860 --> 00:09:54,959 Gareth Aird: always wanted to get wages growth, around three and half 198 00:09:54,960 --> 00:09:59,280 Gareth Aird: percent. They're a couple of very good things. Now, the 199 00:09:59,280 --> 00:10:01,410 Gareth Aird: problem is the economy is made up of a whole 200 00:10:01,410 --> 00:10:05,670 Gareth Aird: lot of individual households and businesses and for many households 201 00:10:05,730 --> 00:10:08,730 Gareth Aird: who have got a mortgage, they're finding it quite tough 202 00:10:08,730 --> 00:10:12,540 Gareth Aird: at the moment because in the RBA's attempt to slow 203 00:10:12,540 --> 00:10:15,300 Gareth Aird: the economy down, they've had to raise rates very quickly, 204 00:10:15,570 --> 00:10:18,390 Gareth Aird: and that's fallen to the home borrower, particularly those home 205 00:10:18,390 --> 00:10:20,940 Gareth Aird: borrowers that have borrowed in the recent past. So the 206 00:10:20,940 --> 00:10:23,370 Gareth Aird: economy on the whole looks all right, but it's not 207 00:10:23,370 --> 00:10:26,850 Gareth Aird: working for every individual household. Some households are doing it 208 00:10:26,850 --> 00:10:30,330 Gareth Aird: tough because they've been basically caught up as being an 209 00:10:30,360 --> 00:10:32,910 Gareth Aird: agent of what the RBA's trying to do, which is 210 00:10:32,910 --> 00:10:35,670 Gareth Aird: slow the economy down and they're the person or the 211 00:10:35,670 --> 00:10:38,940 Gareth Aird: household that's slowing things down and the way that they're 212 00:10:39,270 --> 00:10:42,630 Gareth Aird: being impacted is through higher mortgage rates. So, there are 213 00:10:42,720 --> 00:10:45,210 Gareth Aird: a number of households that are doing it tough, but if 214 00:10:45,210 --> 00:10:47,130 Gareth Aird: you look at things on aggregate, they don't look too bad. 215 00:10:48,000 --> 00:10:49,920 Sean Aylmer: Gareth, I do have to ask you about house prices 216 00:10:49,920 --> 00:10:51,960 Sean Aylmer: because in the last couple of days we've had a 217 00:10:51,960 --> 00:10:55,829 Sean Aylmer: couple of your competitors, or economists from two of the 218 00:10:55,830 --> 00:10:57,900 Sean Aylmer: other major mags come out and say, " Look, we don't 219 00:10:57,900 --> 00:11:01,200 Sean Aylmer: think the housing market's or house prices will fall quite 220 00:11:01,200 --> 00:11:03,059 Sean Aylmer: as much as we thought they would." In fact, I 221 00:11:03,059 --> 00:11:05,579 Sean Aylmer: think they've both said they're going to stabilize. What's your 222 00:11:05,580 --> 00:11:07,050 Sean Aylmer: take on house prices from here? 223 00:11:07,740 --> 00:11:10,319 Gareth Aird: Yeah, look, the last couple of months of home price 224 00:11:10,320 --> 00:11:13,410 Gareth Aird: data, I think, has surprised almost every analyst because we 225 00:11:13,410 --> 00:11:17,490 Gareth Aird: saw home prices falling quite sharply through last year because 226 00:11:17,490 --> 00:11:19,979 Gareth Aird: of the RBA's interest rate hikes and then the RBA's 227 00:11:19,980 --> 00:11:22,320 Gareth Aird: still been hiking the cash rate through the early part 228 00:11:22,320 --> 00:11:25,020 Gareth Aird: of this year, and yet the housing market stabilized. And 229 00:11:25,350 --> 00:11:29,340 Gareth Aird: that's not intuitive. Normally home prices would continue to decline 230 00:11:29,730 --> 00:11:32,670 Gareth Aird: given those higher interest rates, but I think what's happened 231 00:11:32,670 --> 00:11:37,290 Gareth Aird: is population growth has been so strong with residential construction 232 00:11:37,290 --> 00:11:40,350 Gareth Aird: coming off that you've ended up with an incredibly tight 233 00:11:40,350 --> 00:11:44,010 Gareth Aird: rental market. Rents, as we saw in the CPI yesterday, 234 00:11:44,280 --> 00:11:47,820 Gareth Aird: are rising now quite quickly. And so for a potential 235 00:11:47,820 --> 00:11:50,250 Gareth Aird: investor, they're seeing an asset there that has a cash 236 00:11:50,250 --> 00:11:52,620 Gareth Aird: flow which is going up, so they're more willing to 237 00:11:52,620 --> 00:11:55,890 Gareth Aird: then buy that asset. And equally for an owner- occupier, 238 00:11:56,520 --> 00:11:58,590 Gareth Aird: if they're not buying a home to live in, they're 239 00:11:58,590 --> 00:12:01,770 Gareth Aird: probably renting and they're seeing strong growth in rents is 240 00:12:01,770 --> 00:12:04,710 Gareth Aird: not something that they like because they have to fork 241 00:12:04,710 --> 00:12:07,470 Gareth Aird: out more for higher rent. So you're now getting more 242 00:12:07,470 --> 00:12:10,980 Gareth Aird: people willing to transact in the housing market, that is 243 00:12:10,980 --> 00:12:13,830 Gareth Aird: seeing prices stabilize. You overlay that then with a central 244 00:12:13,830 --> 00:12:16,920 Gareth Aird: bank that's basically said, " We're very close to the top 245 00:12:16,920 --> 00:12:19,949 Gareth Aird: of the tightening cycle, there or thereabouts," and I think 246 00:12:19,950 --> 00:12:22,320 Gareth Aird: you've just got more people now willing to transact in 247 00:12:22,320 --> 00:12:24,839 Gareth Aird: the housing market. So we haven't yet put out a 248 00:12:24,840 --> 00:12:27,570 Gareth Aird: new set of home forecasts. We previously thought the peak 249 00:12:27,570 --> 00:12:30,420 Gareth Aird: to trough would be around 15%. It will come in 250 00:12:30,630 --> 00:12:32,699 Gareth Aird: less than that. We've said we'd put out some new 251 00:12:32,700 --> 00:12:35,969 Gareth Aird: numbers on Monday when the core logic figures for April 252 00:12:35,970 --> 00:12:39,900 Gareth Aird: are published, and we'll only be revising those forecasts upwards 253 00:12:40,380 --> 00:12:43,200 Gareth Aird: based on what we're seeing in terms of the trends 254 00:12:43,290 --> 00:12:44,280 Gareth Aird: in the market right now. 255 00:12:44,850 --> 00:12:46,650 Sean Aylmer: Gareth, thank you for talking to Fear and Greed. 256 00:12:47,070 --> 00:12:48,120 Gareth Aird: It's always good to chat, Sean. 257 00:12:48,809 --> 00:12:51,750 Sean Aylmer: That's Gareth Aird, Head of Australian Economics at the Commonwealth 258 00:12:51,750 --> 00:12:54,329 Sean Aylmer: Bank. This is a Fear and Greed daily interview. Join 259 00:12:54,330 --> 00:12:56,220 Sean Aylmer: us every morning for the full episode of Fear and 260 00:12:56,220 --> 00:13:00,510 Sean Aylmer: Greed, Australia's most popular business podcast. I'm Sean Aylmer. Enjoy 261 00:13:00,510 --> 00:13:00,929 Sean Aylmer: your day.