1 00:00:09,090 --> 00:00:11,340 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:11,400 --> 00:00:14,510 Sean Aylmer: Aylmer. And as always, I'm joined by economist, Stephen Koukoulas. 3 00:00:14,510 --> 00:00:17,489 Sean Aylmer: You'll find him at thekouk. com and on Twitter using 4 00:00:17,489 --> 00:00:21,009 Sean Aylmer: the handle @TheKouk. Stephen, I think I should change the intro for next week. 5 00:00:21,560 --> 00:00:23,419 Stephen Koukoulas: What to? I'd be a bit nervous about what you 6 00:00:23,420 --> 00:00:23,799 Stephen Koukoulas: might include. 7 00:00:26,340 --> 00:00:28,860 Sean Aylmer: Maybe I should just start talking about some of the war stories 8 00:00:28,860 --> 00:00:30,380 Sean Aylmer: of yesteryear, perhaps. 9 00:00:30,770 --> 00:00:33,400 Stephen Koukoulas: Oh, perhaps. Yes. Well, before we started recording, we were 10 00:00:33,400 --> 00:00:36,500 Stephen Koukoulas: sharing a little story about seeing Midnight Oil and The 11 00:00:36,500 --> 00:00:40,330 Stephen Koukoulas: Angels at the Uni Refectory, which was about 40 odd years 12 00:00:40,330 --> 00:00:41,180 Stephen Koukoulas: ago for me, I think. 13 00:00:41,180 --> 00:00:42,960 Sean Aylmer: That would have been eighties, that would have been eighties. 14 00:00:43,490 --> 00:00:43,700 Stephen Koukoulas: Definitely. Definitely. 15 00:00:44,430 --> 00:00:47,530 Sean Aylmer: Wow, that would have been an incredible concert because they would have been at their prime, 16 00:00:47,530 --> 00:00:48,350 Sean Aylmer: both those bands. 17 00:00:48,470 --> 00:00:50,310 Stephen Koukoulas: They were. So was I, if the truth be known. 18 00:00:52,750 --> 00:00:56,330 Sean Aylmer: More importantly, look it's a huge week coming up with 19 00:00:56,330 --> 00:00:58,670 Sean Aylmer: the CPI, but just before we get to it. The 20 00:00:58,670 --> 00:01:01,950 Sean Aylmer: minutes of the Reserve Bank Board meeting last week were kind of interesting. 21 00:01:02,500 --> 00:01:05,470 Stephen Koukoulas: Yes, they changed their language and said that they're going 22 00:01:05,470 --> 00:01:08,780 Stephen Koukoulas: to be hiking rates soon. So that being patient and 23 00:01:09,030 --> 00:01:12,530 Stephen Koukoulas: waiting for the wages numbers to confirm that the underlying 24 00:01:12,530 --> 00:01:16,259 Stephen Koukoulas: pressures on inflation are there has been dropped. Now, everybody's 25 00:01:16,260 --> 00:01:19,819 Stephen Koukoulas: interpret that to suggest that they're going to be hiking in June 26 00:01:20,110 --> 00:01:23,740 Stephen Koukoulas: and hiking many times beyond that. The May Board meeting, 27 00:01:23,740 --> 00:01:27,330 Stephen Koukoulas: which is well next week, in fact, is probably still 28 00:01:27,330 --> 00:01:29,240 Stephen Koukoulas: a no- go. But as we're going to touch on 29 00:01:29,240 --> 00:01:32,069 Stephen Koukoulas: in a minute, if the inflation numbers come out well 30 00:01:32,069 --> 00:01:34,700 Stephen Koukoulas: above expectations and the pressure will be on them just 31 00:01:34,700 --> 00:01:37,890 Stephen Koukoulas: to start the tightening cycle, obviously the election campaigns, something 32 00:01:37,890 --> 00:01:38,820 Stephen Koukoulas: that might get in its way. 33 00:01:39,380 --> 00:01:41,680 Sean Aylmer: Okay. So let's jump into that because this is a 34 00:01:41,680 --> 00:01:44,740 Sean Aylmer: very, very big week for the economists of the world like 35 00:01:44,740 --> 00:01:47,650 Sean Aylmer: yourself because we have March inflation data out. 36 00:01:48,260 --> 00:01:50,940 Stephen Koukoulas: Yes. And that's the thing, unfortunately, Australia for the moment 37 00:01:50,940 --> 00:01:54,870 Stephen Koukoulas: does not have a monthly inflation number from the Bureau 38 00:01:54,870 --> 00:01:57,440 Stephen Koukoulas: of Statistics, unlike the rest of the world, where they 39 00:01:57,440 --> 00:01:59,740 Stephen Koukoulas: get the monthly updates. So of course, so in the 40 00:01:59,740 --> 00:02:03,110 Stephen Koukoulas: US and well, every other major economy there're seeing the 41 00:02:03,110 --> 00:02:06,680 Stephen Koukoulas: numbers for January, February and even March in many countries 42 00:02:06,870 --> 00:02:08,990 Stephen Koukoulas: have already come out. So we've sort of been waiting 43 00:02:09,270 --> 00:02:13,070 Stephen Koukoulas: to get this March quarter number, but every forecast that 44 00:02:13,070 --> 00:02:16,770 Stephen Koukoulas: I've seen on the consensus is that we're going to be getting the 45 00:02:16,850 --> 00:02:20,900 Stephen Koukoulas: annual increase in the headline inflation rate, something around about 4.5, 4.6, 4. 46 00:02:20,900 --> 00:02:26,250 Stephen Koukoulas: 7, just approximately. We know that petrol prices were very 47 00:02:26,250 --> 00:02:28,160 Stephen Koukoulas: elevated in the March quarter and a whole lot of 48 00:02:28,160 --> 00:02:31,389 Stephen Koukoulas: other prices were increasing as well. So, that's fine. And 49 00:02:31,389 --> 00:02:34,470 Stephen Koukoulas: we can understand the headline inflation numbers being very high, 50 00:02:34,470 --> 00:02:36,740 Stephen Koukoulas: but in underlying terms, which sort of takes out the 51 00:02:36,740 --> 00:02:40,480 Stephen Koukoulas: effect of petrol or tobacco taxes and these sorts of things. So 52 00:02:40,480 --> 00:02:43,940 Stephen Koukoulas: it's truly the demand pressures in the economy that lead 53 00:02:43,940 --> 00:02:47,100 Stephen Koukoulas: to the trimmed mean underlying inflation rate. Even that's going 54 00:02:47,100 --> 00:02:49,800 Stephen Koukoulas: to be above 3% for the first time in about 55 00:02:49,800 --> 00:02:52,990 Stephen Koukoulas: a decade. And of course, when you've got inflation above 56 00:02:52,990 --> 00:02:54,790 Stephen Koukoulas: the top end of the target band, the pressure is 57 00:02:54,790 --> 00:02:57,850 Stephen Koukoulas: on the RBA to, well to start its hiking cycle. 58 00:02:58,169 --> 00:03:00,579 Sean Aylmer: I suppose it mean that the Reserve Bank has continually 59 00:03:00,590 --> 00:03:04,959 Sean Aylmer: said it wants to see inflation sustainably within the 2 60 00:03:04,960 --> 00:03:09,320 Sean Aylmer: to 3% band and wages above 3% in the 3 61 00:03:09,320 --> 00:03:13,140 Sean Aylmer: to 4% band. What this does do potentially is give it 62 00:03:13,280 --> 00:03:14,139 Sean Aylmer: the green light. 63 00:03:14,669 --> 00:03:17,090 Stephen Koukoulas: It does. And the funny thing about that, and you're quite 64 00:03:17,090 --> 00:03:19,230 Stephen Koukoulas: right to say that in terms of the inflation readings, 65 00:03:19,230 --> 00:03:22,669 Stephen Koukoulas: they do want to see it sustainably within the band. We've 66 00:03:22,669 --> 00:03:25,480 Stephen Koukoulas: gone from a period six months ago where inflation was 67 00:03:25,740 --> 00:03:28,410 Stephen Koukoulas: below the bottom of the band, to the reading that 68 00:03:28,410 --> 00:03:30,570 Stephen Koukoulas: we're going to be seeing on Wednesday this week, where it's going to 69 00:03:30,570 --> 00:03:32,389 Stephen Koukoulas: be above the band. So it didn't really spend any 70 00:03:32,389 --> 00:03:36,690 Stephen Koukoulas: time at all in the band. So again, the change 71 00:03:36,750 --> 00:03:40,520 Stephen Koukoulas: in the inflation momentum globally has been phenomenal. It's been 72 00:03:40,520 --> 00:03:44,210 Stephen Koukoulas: an extraordinary thing that we were all worried six months 73 00:03:44,210 --> 00:03:48,360 Stephen Koukoulas: ago that we had this disinflation, deflationary pressures dogging the 74 00:03:48,360 --> 00:03:51,550 Stephen Koukoulas: global economy. But now we've got the position where a 75 00:03:51,550 --> 00:03:53,880 Stephen Koukoulas: combination of supply chain issues, which I think was a 76 00:03:53,880 --> 00:03:56,910 Stephen Koukoulas: trigger, the pump- priming of the economies, don't forget too, 77 00:03:56,910 --> 00:03:59,450 Stephen Koukoulas: with the COVID crisis. Around the world, we had global 78 00:03:59,450 --> 00:04:02,130 Stephen Koukoulas: central bank setting rates at or about zero. We had 79 00:04:02,490 --> 00:04:06,330 Stephen Koukoulas: fiscal policy sort of injecting literally trillions of dollars into 80 00:04:06,330 --> 00:04:09,970 Stephen Koukoulas: the global economy. And I think economics still works, it's 81 00:04:09,970 --> 00:04:13,930 Stephen Koukoulas: inflated things. And then of course the Russia, Ukraine disaster 82 00:04:14,280 --> 00:04:17,220 Stephen Koukoulas: has seen a lot of energy prices spiking, a lot 83 00:04:17,220 --> 00:04:20,070 Stephen Koukoulas: of other prices moving high because of the problems that 84 00:04:20,070 --> 00:04:25,219 Stephen Koukoulas: are occurring in global distribution chains. So whatever the reason 85 00:04:25,220 --> 00:04:27,130 Stephen Koukoulas: if you like, that we do know that inflation is 86 00:04:27,130 --> 00:04:31,160 Stephen Koukoulas: high, elevated, and the RBAs sort of, maybe they've been 87 00:04:31,160 --> 00:04:33,760 Stephen Koukoulas: caught flatfooted, but they do need to hike because 0. 88 00:04:34,070 --> 00:04:37,410 Stephen Koukoulas: 1% cash rate when you've got inflation above target. Unemployment 89 00:04:37,410 --> 00:04:41,300 Stephen Koukoulas: at 4% and falling, wages probably picking up if all 90 00:04:41,300 --> 00:04:42,930 Stephen Koukoulas: the anecdotes that I hear are correct, that we're going 91 00:04:43,020 --> 00:04:45,940 Stephen Koukoulas: to be seeing the wage pressures increasing dramatically in the 92 00:04:45,940 --> 00:04:47,969 Stephen Koukoulas: next couple of quarters, they just have to start. 93 00:04:48,510 --> 00:04:50,630 Sean Aylmer: So we get that figure out later this week, the 94 00:04:50,630 --> 00:04:53,650 Sean Aylmer: Reserve Bank Board meets next week. Now, I suppose the 95 00:04:53,650 --> 00:04:57,039 Sean Aylmer: consensus view is that they won't lift rates in an 96 00:04:57,040 --> 00:05:00,610 Sean Aylmer: election cycle. Of course, they have previously. And to be 97 00:05:00,610 --> 00:05:02,990 Sean Aylmer: honest, I would've thought it was political to make a 98 00:05:03,110 --> 00:05:05,890 Sean Aylmer: decision not to lift rates because there's an election cycle on. 99 00:05:05,970 --> 00:05:06,000 Stephen Koukoulas: Yes. 100 00:05:06,000 --> 00:05:08,839 Sean Aylmer: Shouldn't they just be ignoring that totally and just doing 101 00:05:08,839 --> 00:05:10,110 Sean Aylmer: what the economy needs? 102 00:05:10,400 --> 00:05:12,279 Stephen Koukoulas: Well, our old friend, Glenn Stevens was the one in 103 00:05:12,279 --> 00:05:16,230 Stephen Koukoulas: 2007 that hiked rates, I think about 12 days or 17 104 00:05:16,230 --> 00:05:19,070 Stephen Koukoulas: days before the election day. And he said, " Well if 105 00:05:19,070 --> 00:05:21,510 Stephen Koukoulas: I don't do my job, the people of Australia going 106 00:05:21,510 --> 00:05:23,799 Stephen Koukoulas: to hold me to account for not tightening policy." His 107 00:05:23,800 --> 00:05:26,560 Stephen Koukoulas: job is to manage demand and meet the inflation and 108 00:05:26,560 --> 00:05:29,220 Stephen Koukoulas: unemployment targets. So he did it. So you're quite right, 109 00:05:29,220 --> 00:05:32,839 Stephen Koukoulas: holding off would be a political decision in itself, hiking 110 00:05:32,839 --> 00:05:35,110 Stephen Koukoulas: is a political decision. So in a sense, they've just 111 00:05:35,110 --> 00:05:37,520 Stephen Koukoulas: got to do their job. And as I've noted elsewhere, 112 00:05:37,520 --> 00:05:39,669 Stephen Koukoulas: yeah the ABS still publish data, which can have an 113 00:05:39,670 --> 00:05:43,039 Stephen Koukoulas: influence on election outcomes, the inflation number itself or the next 114 00:05:43,050 --> 00:05:45,510 Stephen Koukoulas: unemployment number, which comes a week before polling day will 115 00:05:45,510 --> 00:05:49,600 Stephen Koukoulas: be really important. So public institutions still need to do 116 00:05:49,600 --> 00:05:52,950 Stephen Koukoulas: their job. And for the RBA, they could actually paint 117 00:05:52,950 --> 00:05:54,770 Stephen Koukoulas: it as a really good story. This is the thing 118 00:05:54,770 --> 00:05:58,430 Stephen Koukoulas: that I find a little confusing that we are pleased 119 00:05:58,640 --> 00:06:02,160 Stephen Koukoulas: that inflation's hit our target earlier than we were thinking. 120 00:06:02,160 --> 00:06:04,560 Stephen Koukoulas: We are pleased that the unemployment rates fall onto 4%, 121 00:06:05,200 --> 00:06:08,050 Stephen Koukoulas: much, much earlier than we thought. And we're pleased that 122 00:06:08,050 --> 00:06:11,200 Stephen Koukoulas: the economy's recovering from COVID, in a solid sort of 123 00:06:11,200 --> 00:06:13,570 Stephen Koukoulas: way. So it's actually a good news story, that we 124 00:06:13,570 --> 00:06:16,409 Stephen Koukoulas: tend to have the negative effects of rate hikes hitting 125 00:06:16,500 --> 00:06:18,720 Stephen Koukoulas: the first home buyers and business borrowing costs, but it's 126 00:06:18,720 --> 00:06:20,470 Stephen Koukoulas: actually a good story. 127 00:06:20,800 --> 00:06:23,920 Sean Aylmer: Yeah. I mean, home loan rates are so low. They 128 00:06:23,920 --> 00:06:26,580 Sean Aylmer: can go up 2% and still be historically low. 129 00:06:27,860 --> 00:06:30,020 Stephen Koukoulas: Yes. That's the extraordinary thing. Yeah, that with the rate 130 00:06:30,020 --> 00:06:32,570 Stephen Koukoulas: cuts that we saw during COVID, and even just immediately 131 00:06:32,570 --> 00:06:35,800 Stephen Koukoulas: prior to the COVID crisis hitting. If interest rates go 132 00:06:35,800 --> 00:06:38,599 Stephen Koukoulas: up to what four, four, and a half percent for mortgages, 133 00:06:38,600 --> 00:06:40,230 Stephen Koukoulas: that's a stunningly low rate still. 134 00:06:40,520 --> 00:06:43,219 Sean Aylmer: Yeah. Yeah. Look the other just very quickly the PPI, the 135 00:06:43,220 --> 00:06:47,050 Sean Aylmer: producer price index, that's kind of interesting because we're starting 136 00:06:47,050 --> 00:06:51,330 Sean Aylmer: to see anecdotally at least companies coming up, Brambles did 137 00:06:51,330 --> 00:06:53,760 Sean Aylmer: it last week, the supermarket's done it saying, " Hey, look 138 00:06:53,760 --> 00:06:58,180 Sean Aylmer: our input costs are rising, therefore we need to increase 139 00:06:58,180 --> 00:06:59,940 Sean Aylmer: the price of the products we do." And in Bramble's 140 00:06:59,940 --> 00:07:02,450 Sean Aylmer: case, they make pallets, they've increased the price of pallets. 141 00:07:02,870 --> 00:07:04,660 Sean Aylmer: They told the market last week, its share price when 142 00:07:04,660 --> 00:07:09,060 Sean Aylmer: up 8%. So that PPI sort of we'll start to see 143 00:07:09,060 --> 00:07:11,130 Sean Aylmer: that officially rather than just anecdotally. 144 00:07:11,760 --> 00:07:15,430 Stephen Koukoulas: Indeed, and producer prices, yes, they're the cost of goods 145 00:07:15,430 --> 00:07:18,550 Stephen Koukoulas: and services that go into the production process. So yeah, again, the 146 00:07:18,550 --> 00:07:21,700 Stephen Koukoulas: headline one's energy prices, but as we're seeing in the global 147 00:07:21,700 --> 00:07:25,760 Stephen Koukoulas: commodity cycle, weak prices are elevated, nickel and these other 148 00:07:25,760 --> 00:07:28,030 Stephen Koukoulas: prices. So if you're making bread or stainless steel or 149 00:07:28,030 --> 00:07:30,740 Stephen Koukoulas: whatever, and their inputs into your business model, then you 150 00:07:30,740 --> 00:07:33,780 Stephen Koukoulas: are confronting higher inflation. And that's where the PPI is such 151 00:07:33,780 --> 00:07:35,050 Stephen Koukoulas: an important indicator as well. 152 00:07:35,090 --> 00:07:37,420 Sean Aylmer: Stephen, have a great week. I look forward to talking 153 00:07:37,420 --> 00:07:40,560 Sean Aylmer: to you next week after we've seen what those CPI 154 00:07:40,560 --> 00:07:41,070 Sean Aylmer: figures say. 155 00:07:41,360 --> 00:07:42,550 Stephen Koukoulas: Looking forward to it, Sean. Thank you. 156 00:07:43,090 --> 00:07:45,740 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. You 157 00:07:45,740 --> 00:07:48,540 Sean Aylmer: can find him at thekouk. com, T- H- E- K- O- U- K. 158 00:07:49,230 --> 00:07:51,820 Sean Aylmer: com, and follow him on Twitter using the handle @ TheKouk. 159 00:07:52,170 --> 00:07:54,100 Sean Aylmer: I'm Sean Aylmer, and this is Fear and Greed, The 160 00:07:54,100 --> 00:07:54,670 Sean Aylmer: Week Ahead.