1 00:00:03,700 --> 00:00:06,350 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer 2 00:00:06,410 --> 00:00:10,240 Sean Aylmer: and I'm joined, as always, by economist Stephen Koukoulis. You'll 3 00:00:10,240 --> 00:00:12,950 Sean Aylmer: find him at thekouk. com, T- H- E- K- O- U- K. 4 00:00:13,150 --> 00:00:16,940 Sean Aylmer: com, and on Twitter using the handle thekouk. Stephen, good morning. 5 00:00:17,280 --> 00:00:18,140 Stephen Koukoulis: Good morning, Sean. 6 00:00:18,890 --> 00:00:21,010 Sean Aylmer: Fair bit going on in the last week. There weren't a lot 7 00:00:21,010 --> 00:00:24,349 Sean Aylmer: of announcements but the Reserve Bank really set the cat 8 00:00:24,350 --> 00:00:27,150 Sean Aylmer: amongst the pigeons in terms of what it did after 9 00:00:27,150 --> 00:00:28,450 Sean Aylmer: its board meeting last Tuesday. 10 00:00:29,160 --> 00:00:32,680 Stephen Koukoulis: It said it's no longer going to be patient and, 11 00:00:32,680 --> 00:00:36,409 Stephen Koukoulis: of course, everybody was anticipating or interpreting that, I should 12 00:00:36,409 --> 00:00:40,010 Stephen Koukoulis: say, as getting set for an imminent interest rate hike. 13 00:00:40,010 --> 00:00:41,650 Stephen Koukoulis: Now, I think the writing's been on the wall for 14 00:00:41,650 --> 00:00:44,729 Stephen Koukoulis: some time with inflation picking up, not just here in 15 00:00:44,729 --> 00:00:48,409 Stephen Koukoulis: Australia, but also globally. In fact, more intensively globally, that 16 00:00:48,409 --> 00:00:52,240 Stephen Koukoulis: we've had U. S., UK, Canada, New Zealand inflation significantly 17 00:00:52,409 --> 00:00:55,180 Stephen Koukoulis: above us but when we get our quarterly numbers in 18 00:00:55,190 --> 00:00:57,130 Stephen Koukoulis: a couple of weeks time, that'll confirm that we've got 19 00:00:57,130 --> 00:01:00,279 Stephen Koukoulis: the inflation issue too and as we've been saying for 20 00:01:00,280 --> 00:01:03,230 Stephen Koukoulis: some time now, the labor mark in Australia is incredibly 21 00:01:03,230 --> 00:01:07,420 Stephen Koukoulis: tight. We've got huge demand for job. The job vacancy 22 00:01:07,420 --> 00:01:11,130 Stephen Koukoulis: series continue to point to strengthen. The RBA, in its 23 00:01:11,410 --> 00:01:14,980 Stephen Koukoulis: wisdom, is now saying that maybe a 0. 1% cash rate is 24 00:01:14,980 --> 00:01:17,490 Stephen Koukoulis: no longer appropriate and I think the answer's, " Yes, it's no longer 25 00:01:17,490 --> 00:01:20,900 Stephen Koukoulis: appropriate." They've got to get on their bikes pretty soon 26 00:01:20,900 --> 00:01:21,690 Stephen Koukoulis: and start hiking. 27 00:01:23,819 --> 00:01:26,209 Sean Aylmer: Okay. So, that brings us into this week. The labor 28 00:01:26,209 --> 00:01:28,580 Sean Aylmer: force figures are out this week. Do you reckon we'll 29 00:01:28,580 --> 00:01:30,789 Sean Aylmer: end up at lower than 4% unemployment rate? 30 00:01:31,450 --> 00:01:33,720 Stephen Koukoulis: Well, there's a good chance. Well, last month, for the 31 00:01:33,770 --> 00:01:35,950 Stephen Koukoulis: month of February, the last published numbers, we had 4. 32 00:01:36,240 --> 00:01:40,319 Stephen Koukoulis: 0% and given the demand for labor, as I mentioned 33 00:01:40,319 --> 00:01:43,060 Stephen Koukoulis: just a moment ago, the job add series, the ABS 34 00:01:43,060 --> 00:01:48,320 Stephen Koukoulis: job vacancy series is screaming that the demand for labor 35 00:01:48,320 --> 00:01:51,890 Stephen Koukoulis: from the private sector in particular is still very, very 36 00:01:51,890 --> 00:01:56,030 Stephen Koukoulis: strong and we've only just got the tentative reopening of 37 00:01:56,240 --> 00:01:59,240 Stephen Koukoulis: the international borders so that influx of workers, if you 38 00:01:59,240 --> 00:02:02,500 Stephen Koukoulis: like, probably isn't coming through yet. So that's a long 39 00:02:02,500 --> 00:02:04,350 Stephen Koukoulis: way of saying, " Yes. I think we're going to get 40 00:02:04,730 --> 00:02:09,100 Stephen Koukoulis: a sub 4% unemployment rate being printed," and the last 41 00:02:09,100 --> 00:02:11,980 Stephen Koukoulis: time we saw a three point something unemployment rate was 42 00:02:11,980 --> 00:02:16,169 Stephen Koukoulis: 1974. So that's what you're going to hear a lot 43 00:02:16,169 --> 00:02:19,240 Stephen Koukoulis: about from analysts later this week when we see that 44 00:02:19,240 --> 00:02:21,669 Stephen Koukoulis: number and certainly a lot from our politicians as the 45 00:02:21,669 --> 00:02:23,620 Stephen Koukoulis: election campaign starts to hot up. 46 00:02:24,320 --> 00:02:25,850 Sean Aylmer: Now, I'm going to ask you to give us a 47 00:02:25,850 --> 00:02:28,169 Sean Aylmer: 101 on something that we're going to hear a bit 48 00:02:28,169 --> 00:02:32,739 Sean Aylmer: about and it's called the NAIRU, the non- accelerating inflationary 49 00:02:33,080 --> 00:02:35,120 Sean Aylmer: rate of unemployment. Is that right? 50 00:02:35,230 --> 00:02:36,700 Stephen Koukoulis: Yes. That is correct. 51 00:02:37,000 --> 00:02:40,359 Sean Aylmer: We're going to hear a bit about that. What is that exactly? 52 00:02:40,740 --> 00:02:44,530 Stephen Koukoulis: It's a measure that a lot of market analysts and 53 00:02:44,530 --> 00:02:47,119 Stephen Koukoulis: certainly central banks look at when they're trying to work out, " 54 00:02:47,120 --> 00:02:50,590 Stephen Koukoulis: How low can we get the unemployment rate before we 55 00:02:50,590 --> 00:02:55,460 Stephen Koukoulis: run into an inflation problem?" In theory, we could have 56 00:02:55,460 --> 00:03:01,500 Stephen Koukoulis: an unemployment rate of 1% if money was pumped in 57 00:03:01,500 --> 00:03:04,589 Stephen Koukoulis: extraordinary fashion into the economy. Everybody got a job. We 58 00:03:04,590 --> 00:03:07,490 Stephen Koukoulis: paid everybody to paint rocks white sort of thing. We could 59 00:03:07,910 --> 00:03:11,470 Stephen Koukoulis: get the unemployment rate really low. However, that is not consistent 60 00:03:11,690 --> 00:03:14,010 Stephen Koukoulis: with the two to three percent inflation target because it'd 61 00:03:14,010 --> 00:03:16,310 Stephen Koukoulis: be money sloshing around the economy and inflation would pick 62 00:03:16,310 --> 00:03:20,620 Stephen Koukoulis: up. So the NAIRU is really effectively an assessment about, " 63 00:03:20,620 --> 00:03:23,530 Stephen Koukoulis: How fast can we grow the economy before we run 64 00:03:23,530 --> 00:03:26,990 Stephen Koukoulis: into these inflation constraints?" and the number does change. The 65 00:03:26,990 --> 00:03:30,780 Stephen Koukoulis: composition and structure of the labor market changes with skills 66 00:03:30,780 --> 00:03:34,359 Stephen Koukoulis: and education and demand in the economy so it's a 67 00:03:34,360 --> 00:03:38,190 Stephen Koukoulis: bit of a moving feast. But the best guess from 68 00:03:38,330 --> 00:03:41,650 Stephen Koukoulis: Treasury, the Reserve Bank and most respected economists is that 69 00:03:41,930 --> 00:03:45,790 Stephen Koukoulis: NAIRU is probably three and a half to three and 70 00:03:45,790 --> 00:03:49,130 Stephen Koukoulis: three quarter percent. So that's the rate that we can have the unemployment 71 00:03:49,190 --> 00:03:53,110 Stephen Koukoulis: rate without having inflation pressures. So that is the critical 72 00:03:53,110 --> 00:03:55,410 Stephen Koukoulis: issue for the RBA too because if we do find 73 00:03:55,940 --> 00:03:58,500 Stephen Koukoulis: that if we get unemployment rate, say, to three and 74 00:03:58,500 --> 00:04:00,790 Stephen Koukoulis: a quarter percent, which I think my friends at ANZ 75 00:04:00,970 --> 00:04:04,870 Stephen Koukoulis: are actually forecasting, and it does see wages growth accelerating 76 00:04:04,870 --> 00:04:08,790 Stephen Koukoulis: rapidly and inflation accelerating rapidly, then we know we're overcooking 77 00:04:08,790 --> 00:04:10,100 Stephen Koukoulis: the economy. It's overheating. 78 00:04:11,340 --> 00:04:13,850 Sean Aylmer: Righto. Well, I look forward to the numbers because if 79 00:04:13,850 --> 00:04:16,480 Sean Aylmer: we do end up at 3. 9 or 3. 8 80 00:04:16,480 --> 00:04:19,169 Sean Aylmer: or 3. 7, I tell you what. Those calls for 81 00:04:19,170 --> 00:04:22,620 Sean Aylmer: a rate hike are going to get louder and louder 82 00:04:22,710 --> 00:04:23,160 Sean Aylmer: and louder. 83 00:04:23,720 --> 00:04:27,860 Stephen Koukoulis: They're already screaming pretty loud right now. I'm looking at the future's market. 84 00:04:27,860 --> 00:04:30,900 Stephen Koukoulis: Gosh. One of the ways that you can judge, not necessarily 85 00:04:30,900 --> 00:04:33,760 Stephen Koukoulis: what the market economists, no matter how good they are, 86 00:04:34,330 --> 00:04:36,880 Stephen Koukoulis: saying about interest rates, the future's market is where people 87 00:04:36,880 --> 00:04:39,080 Stephen Koukoulis: put money where their mouth is and we've got an 88 00:04:39,080 --> 00:04:41,190 Stephen Koukoulis: official cash rate of two percent by the end of 89 00:04:41,190 --> 00:04:44,050 Stephen Koukoulis: this year. So in the next eight months, that's basically 90 00:04:44,850 --> 00:04:47,860 Stephen Koukoulis: 200 points of rate hike. The RBA's got to squeeze in lots 91 00:04:47,860 --> 00:04:50,190 Stephen Koukoulis: of 25 point moves and probably a couple of 50 92 00:04:50,190 --> 00:04:51,539 Stephen Koukoulis: basis point moves to get there. 93 00:04:51,810 --> 00:04:53,960 Sean Aylmer: Okay. So the labor force figures are out this week 94 00:04:54,110 --> 00:04:57,270 Sean Aylmer: but we've also got some other pretty important sentiment surveys, 95 00:04:57,270 --> 00:04:59,810 Sean Aylmer: consumer and National Australia Bank's business survey. 96 00:05:00,040 --> 00:05:02,970 Stephen Koukoulis: Oh, both really important surveys. Both have taken a little 97 00:05:03,180 --> 00:05:04,659 Stephen Koukoulis: bit of a hit in the last few months. I 98 00:05:04,910 --> 00:05:06,960 Stephen Koukoulis: think for the consumers, it's the cost of living. The 99 00:05:06,960 --> 00:05:10,810 Stephen Koukoulis: petrol price hikes saw the measure drop a bit. Now, 100 00:05:10,810 --> 00:05:13,670 Stephen Koukoulis: obviously, we've had a bit of petrol price relief with 101 00:05:13,670 --> 00:05:15,740 Stephen Koukoulis: the tax change in the budget a couple of weeks 102 00:05:15,740 --> 00:05:18,409 Stephen Koukoulis: ago and the global price has dropped as well, coincidentally, 103 00:05:18,410 --> 00:05:22,870 Stephen Koukoulis: so maybe that cost of living pressure will be abating 104 00:05:22,870 --> 00:05:26,930 Stephen Koukoulis: somewhat. The good news on the labor market should see consumer 105 00:05:26,930 --> 00:05:29,400 Stephen Koukoulis: confidence picking up but, of course, the fear of interest 106 00:05:29,400 --> 00:05:31,820 Stephen Koukoulis: rate hikes should see it pushing down. So like all 107 00:05:31,820 --> 00:05:33,159 Stephen Koukoulis: good economists, I've got my left hand and my right hand and 108 00:05:35,089 --> 00:05:37,300 Stephen Koukoulis: so we'll see what consumers are actually weighing up in 109 00:05:37,300 --> 00:05:42,240 Stephen Koukoulis: terms of their financial position but the business sector confidence 110 00:05:42,240 --> 00:05:45,810 Stephen Koukoulis: numbers from NAB, a really important survey. It includes a 111 00:05:45,810 --> 00:05:49,770 Stephen Koukoulis: ton of information on just how businesses are feeling. So 112 00:05:49,770 --> 00:05:51,839 Stephen Koukoulis: that's a bit of a touchy feely one but they 113 00:05:51,839 --> 00:05:54,440 Stephen Koukoulis: do also ask, " Are you expecting to hire more workers? What are 114 00:05:54,440 --> 00:05:57,159 Stephen Koukoulis: your expected wages bill going to be? Is it a 115 00:05:57,160 --> 00:05:59,680 Stephen Koukoulis: good time to ramp up your capital expenditure?" So it's 116 00:05:59,680 --> 00:06:02,580 Stephen Koukoulis: those sub- components that'll probably be looked at for a 117 00:06:02,580 --> 00:06:05,469 Stephen Koukoulis: bit more information about whether the business sector has recovered 118 00:06:05,470 --> 00:06:08,710 Stephen Koukoulis: from that mini setback late last year, early this year. 119 00:06:09,860 --> 00:06:13,010 Sean Aylmer: Stephen, what's your best guess for when rates will rise? 120 00:06:13,930 --> 00:06:16,470 Stephen Koukoulis: Well, they should rise at the next board meeting but, of 121 00:06:16,470 --> 00:06:19,830 Stephen Koukoulis: course, the election will get in the way of that. But look, if you 122 00:06:19,830 --> 00:06:23,109 Stephen Koukoulis: were to force me to have a wager, I'd say June. 123 00:06:23,170 --> 00:06:25,529 Stephen Koukoulis: They'd probably go 40 basis points, which sounds a bit 124 00:06:25,529 --> 00:06:28,580 Stephen Koukoulis: funny but to get back onto that path of quarter 125 00:06:28,580 --> 00:06:31,440 Stephen Koukoulis: percentage point moves, we're currently at 10 basis points so 126 00:06:31,730 --> 00:06:33,760 Stephen Koukoulis: I'd say they go 40 and it's not going to 127 00:06:33,839 --> 00:06:36,489 Stephen Koukoulis: kill the economy, far from it, but it's a first shot 128 00:06:36,710 --> 00:06:40,750 Stephen Koukoulis: in starting this process of normalizing rates and I think 129 00:06:40,750 --> 00:06:42,700 Stephen Koukoulis: we're going to see quite a few rate hikes over the course 130 00:06:42,700 --> 00:06:43,539 Stephen Koukoulis: of the next 12 months. 131 00:06:44,620 --> 00:06:45,620 Sean Aylmer: Stephen, have a great week. 132 00:06:46,290 --> 00:06:47,150 Stephen Koukoulis: Thanks, Sean. You too. 133 00:06:47,850 --> 00:06:50,099 Sean Aylmer: That was economist, Stephen Koukoulis, better known as The Kouk. 134 00:06:50,710 --> 00:06:52,760 Sean Aylmer: You can find him at thekouk. com and follow him 135 00:06:52,760 --> 00:06:57,010 Sean Aylmer: on Twitter using the handle thekouk. I'm Sean Aylmer. This is Fear and 136 00:06:57,010 --> 00:06:58,020 Sean Aylmer: Greed - The Week Ahead.