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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson

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Speaker 1: and hello Sean Almer.

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Speaker 2: Hello Michael. I love the way you say hello, Sean alm.

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Speaker 1: It feels like a game show.

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Speaker 2: It does.

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Speaker 1: Step on down. I was a come on down? Wasn't

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Speaker 1: it come on down?

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Speaker 2: Anyone?

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Speaker 1: The next contestant on the price is right?

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Speaker 2: That's one on.

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Speaker 1: Wow, that took it took a turn. Inflation data came

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Speaker 1: out yesterday. He is very serious. Now, this was the

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Speaker 1: quarterly inflation data. We've been waiting to see it, and

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Speaker 1: one thing stood out when we were talking about it

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Speaker 1: on the show. You mentioned that goods inflation is very mild.

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Speaker 1: I think was the term that you used at one

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Speaker 1: point one percent, and then you said, in fact, it's

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Speaker 1: probably bordering on being too low. So my question for

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Speaker 1: you is what happens when inflation is too low, and

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Speaker 1: particularly say when we've got goods inflation too low and

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Speaker 1: services inflation kind of still up higher. How does that

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Speaker 1: balance out? And what happens if goods inflation is too low?

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Speaker 1: What's the risk here?

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Speaker 2: So let's say you are driving a new Volkswagen I'd

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Speaker 2: say this because you are I am.

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Speaker 1: Indeed, we are working with Volkswagen at the moment, and

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Speaker 1: one of those benefits is we get to test drive

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Speaker 1: the cars.

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Speaker 2: So let's say you wanted to buy that car for

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Speaker 2: eighty thousand dollars. Right, I'm going to buy this car

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Speaker 2: for eighty thousand dollars, but we have deflation of two percent.

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Speaker 2: For arguments sake, the maths is too hard for people

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Speaker 2: to work out. But basically, at two percent, that means

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Speaker 2: next year it's going to cost seventy eight thousand, six

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Speaker 2: hundred dollars, not eighty thousand dollars. Sorry, it's going to

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Speaker 2: cost seventy eight thousand, six hundred, not eighty thousand dollars

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Speaker 2: to buy the same car. To buy the same car

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Speaker 2: new new. What are you going to do?

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Speaker 1: Oh? Wait till next year.

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Speaker 2: Ahah. Then we've still got deflation. If you'd wait one

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Speaker 2: more year, you're going to have to pay you know,

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Speaker 2: ninety eight percent of seventy eight six hundred, which is

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Speaker 2: much too hard for me to work out. Let's say

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Speaker 2: talk about about seventy seven to one hundred. I think

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Speaker 2: seventy seven one hundred. So you wait two years time

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Speaker 2: you're going to get it cheaper.

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Speaker 1: I'm just going to hold off. I'm just going to keep.

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Speaker 2: Waiting, exactly. And that's the problem with deflation. No one

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Speaker 2: spends any money. They just hang around, They hold on

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Speaker 2: and say, well, we won't wait, we won't get it

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Speaker 2: yet because you know it's going to be cheaper next

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Speaker 2: time around. That's a big issue. Even when you have

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Speaker 2: inflation of one percent right now at fear and great,

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Speaker 2: you'll get your you know, two point seven percent price,

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Speaker 2: high wage increase, whatever it is we give every year, rightep.

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Speaker 2: So if you're going up to and a half percent

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Speaker 2: and the cost of the car is going up one

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Speaker 2: percent relative in relative terms, you're better to wait for

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Speaker 2: a year to buy the car. Now, it's not obviously

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Speaker 2: as obvious, not obviously as obvious, it's not as obvious

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Speaker 2: as price is falling, but the relativity is there. So

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Speaker 2: what I'm saying the problem with deflation is the economy

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Speaker 2: grinds to a hawk because no one actually goes and

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Speaker 2: buy stuff because I may as well hold on and

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Speaker 2: buy it some other time.

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Speaker 1: So deflation is where it's actually negative or where is

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Speaker 1: that where it's just below a certain point.

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Speaker 2: So deflation is actually negative. It's in minus. If you're

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Speaker 2: a business, right you want to invest, you think excellent.

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Speaker 2: I will invest, invest and buy ten podcasts because they

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Speaker 2: are valuable. But there's deflation and they're less value. Next year, Well,

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Speaker 2: they're not going to invest to buy the ten podcasts.

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Speaker 2: They might buy nine of them, they might not buy

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Speaker 2: any of them because the value is falling. Right, So

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Speaker 2: the whole business investment thing gets undermined as well. So

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Speaker 2: in some ways deflation is worse than inflation. Now, anything

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Speaker 2: and an extreme is bad, but deflation can totally grind

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Speaker 2: your economy to a halt, whereas inflation, if you can

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Speaker 2: keep it within that two to three percent, I guest,

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Speaker 2: which is what the reserve being reckons they should try

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Speaker 2: and do that kind of lets things tick over, and

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Speaker 2: you know, you buy it because it's in phacing ten percent.

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Speaker 2: You're going to buy it now because you're worried about

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Speaker 2: ten percent, but then you can't afford stuff next year. Okay,

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Speaker 2: that sort of thing. What was interesting yesterday's umbers there

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Speaker 2: were more so the two to three percent band. There

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Speaker 2: were more specific items under two percent than over three percent.

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Speaker 1: Okay, because I actually wanted to ask you about this

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Speaker 1: because when we're talking about goods inflation being so low,

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Speaker 1: right at one point one percent, you've got specific examples

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Speaker 1: of goods that are so much higher, for instance, over

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Speaker 1: the last twelve months, and eggs was something that we

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Speaker 1: highlighted there coming in at nineteen point one percent, and

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Speaker 1: a bunch of other food items that were really high

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Speaker 1: over the last over the last twelve months. Is that

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Speaker 1: because they are then weighted less than other things within

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Speaker 1: this the abs.

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Speaker 2: Not necessarily it's goods and services. Of the two sides,

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Speaker 2: goods something you can touch by services is stuff done

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Speaker 2: to you a haircut. Insurance is a service, for example,

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Speaker 2: It's not tangible.

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Speaker 1: Whereas is education considered generally a service.

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Speaker 2: Okay, So with service inflation, because there you pay insurance

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Speaker 2: once every every year, whereas you do your groceries every week,

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Speaker 2: services inflation takes a longer time to increase all four.

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Speaker 2: We've seen that in rental prices, which is part of

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Speaker 2: the services inflation, in insurance, those sorts of things, they've

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Speaker 2: just taken a lot longer to come down. Now from

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Speaker 2: member is three point three percent services inflation over the

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Speaker 2: last year, one point one percent for goods. Because goods

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Speaker 2: can just change price pretty much overnight, and services take

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Speaker 2: the stickier Michael, one of your favorite words.

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Speaker 1: So does that mean then that with those examples of

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Speaker 1: say eggs and meat and other things, that those rises

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Speaker 1: were probably in the earlier half or the earlier quarters

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Speaker 1: of the year.

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Speaker 2: Not necessarily they could be. I mean with eggs, there

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Speaker 2: was because of the outbreak of vert flu. Yeah, and

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Speaker 2: so there were a lack of eggs and so the

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Speaker 2: prices went half. Now, as far as I'm aware, the

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Speaker 2: Bureau doesn't take into account that there's a lack of eggs.

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Speaker 2: They're just worried about the price on this particular survey. Now,

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Speaker 2: what gets me in your point where you're trying to

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Speaker 2: go there is quarterly versus annual infation. So the trimmed

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Speaker 2: mean method yesterday was zero point six percent, the annual

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Speaker 2: was two point six percent. If you go zero point six,

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Speaker 2: which is the most recent reading for the last three months,

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Speaker 2: you multiply that by four. They talk about an annualized

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Speaker 2: rate for the quarter. That's two point four. Now, the

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Speaker 2: actual annual rate was two point six and that's when

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Speaker 2: we're saying the trend is down.

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Speaker 1: Okay, this is really turned into quite the again, I

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Speaker 1: think I prefer the start where we're a game show.

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Speaker 1: It's turned into more of a universe in a lecture

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Speaker 1: than in game show. That's all right, that's all right,

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Speaker 1: But still I learned something. I probably learned more watching

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Speaker 1: listening to this than I did watching The Prices Right.

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Speaker 1: Do you remember the Alpine the Mountain clip? Did you

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Speaker 1: ever watch The Prices?

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Speaker 2: Right?

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Speaker 1: I just wasted on you there. I don't even know

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Speaker 1: why I'm even talking to you anymore. Thank you for

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Speaker 1: answering my questions.

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Speaker 2: You're welcome, Michael.

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Speaker 1: And if you've got your own questions that you would

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Speaker 1: like us to answer them, please send them on through

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Speaker 1: via the website here on greed dot com dot au,

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Speaker 1: or head to any of the social media platforms and

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Speaker 1: shoot them on through there and we'll pop them on

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Speaker 1: the list. I'm Michael Thompson and this is asked Fear

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Speaker 1: and Greed