1 00:00:08,730 --> 00:00:12,001 Speaker 1: Welcome to (Fear and Greed) , the Week Ahead. I'm (Sean Alma) , 2 00:00:11,590 --> 00:00:15,001 Speaker 1: and as always, I am joined by economist Stephen (Kakoulis) 3 00:00:15,001 --> 00:00:18,020 Speaker 1: , a very excited economist, I suspect. You'll find him 4 00:00:18,020 --> 00:00:20,120 Speaker 1: at thekouk. com T- H- E- K- O- U- K, 5 00:00:20,120 --> 00:00:23,870 Speaker 1: and on Twitter using to handle thekouck. Steven, how was last 6 00:00:23,870 --> 00:00:24,419 Speaker 1: week for you? 7 00:00:25,079 --> 00:00:28,000 Speaker 2: It was exciting. It was incredible to see, well, a 8 00:00:28,000 --> 00:00:31,170 Speaker 2: whole range of things, because we saw the Reserve Bank 9 00:00:31,230 --> 00:00:33,630 Speaker 2: come to the Party with a 25 basis point rate 10 00:00:33,630 --> 00:00:37,710 Speaker 2: hike. We saw the Fed hiking interest rates, the Bank 11 00:00:37,710 --> 00:00:41,589 Speaker 2: of England hiking interest rates, that incredible volatility in stock 12 00:00:41,590 --> 00:00:44,330 Speaker 2: and bond markets through the course of the week. So, 13 00:00:44,840 --> 00:00:47,710 Speaker 2: gosh, you look away for five minutes, and the world 14 00:00:47,710 --> 00:00:49,010 Speaker 2: has changed, basically. 15 00:00:49,750 --> 00:00:53,850 Speaker 1: So, let's start with the reserve bank. Is it embarrassing 16 00:00:53,850 --> 00:00:56,120 Speaker 1: for the bank, do you think, to sort of have 17 00:00:56,120 --> 00:01:00,150 Speaker 1: to eat their words, really, and basically hike rates almost 18 00:01:00,150 --> 00:01:02,770 Speaker 1: two years before they said they were going to six 19 00:01:02,770 --> 00:01:03,250 Speaker 1: months ago? 20 00:01:03,570 --> 00:01:06,309 Speaker 2: Yeah. And indeed, if you look at the April minutes 21 00:01:06,440 --> 00:01:08,830 Speaker 2: of the (RBA) Board Meeting, they said, "Rates are on 22 00:01:08,830 --> 00:01:11,620 Speaker 2: hold for an extended period of time," and there they 23 00:01:11,620 --> 00:01:14,910 Speaker 2: were, four weeks later, hiking them. So, look, it's easy 24 00:01:14,910 --> 00:01:17,050 Speaker 2: to be critical of the RBA, so I will be. 25 00:01:18,500 --> 00:01:22,170 Speaker 2: They've made mistakes. They've got it wrong. They ignored the 26 00:01:22,170 --> 00:01:24,050 Speaker 2: wage pressures. Then all of a sudden, they listen to 27 00:01:24,050 --> 00:01:28,350 Speaker 2: anecdotes of wage pressures. They ignore the inflation acceleration. Now 28 00:01:28,350 --> 00:01:31,080 Speaker 2: they're looking at it. They ignored the rate hikes from other 29 00:01:31,080 --> 00:01:33,390 Speaker 2: central banks. Now they're following that lead. So, in a 30 00:01:33,390 --> 00:01:34,959 Speaker 2: sense, they've got a bit of catch up to do, 31 00:01:34,959 --> 00:01:39,500 Speaker 2: and I think there's some damaged credibility, to their benefit, 32 00:01:39,500 --> 00:01:41,569 Speaker 2: I suppose, they have learned from those mistakes. So, the 33 00:01:41,569 --> 00:01:44,660 Speaker 2: 25 point hike was probably a bit more than people 34 00:01:44,660 --> 00:01:48,600 Speaker 2: were thinking, and certainly, the hawkishness that (Governor Lowe) was 35 00:01:49,020 --> 00:01:51,600 Speaker 2: exuding, because he gave the press conference after the rate 36 00:01:51,600 --> 00:01:55,110 Speaker 2: hike last Tuesday, so there were a lot of journalists, 37 00:01:55,390 --> 00:01:58,410 Speaker 2: people from financial markets, grilling him on what was going 38 00:01:58,410 --> 00:02:01,510 Speaker 2: on, and I must confess that he came across really 39 00:02:01,510 --> 00:02:04,001 Speaker 2: well in that interview, and he perhaps was doing that (inaudible) 40 00:02:04,001 --> 00:02:07,770 Speaker 2: about, " We misread the inflation pick up. Yes, we've 41 00:02:07,770 --> 00:02:10,250 Speaker 2: misread the wages pick up, and yet, we need to get on 42 00:02:10,410 --> 00:02:11,959 Speaker 2: our bikes and start hiking if we're going to get 43 00:02:11,960 --> 00:02:13,330 Speaker 2: inflation back under control." 44 00:02:14,120 --> 00:02:15,889 Speaker 1: I mean, when you say " hawkish," it's kind of this 45 00:02:15,889 --> 00:02:20,490 Speaker 1: bias towards lifting rates. It certainly is very, very different, 46 00:02:20,550 --> 00:02:23,510 Speaker 1: how he sounded a week ago, last Tuesday, after lifting 47 00:02:23,510 --> 00:02:26,380 Speaker 1: rates, than anytime in the last few years. 48 00:02:26,900 --> 00:02:30,010 Speaker 2: Indeed, and I think that's pragmatism. I think it's coming 49 00:02:30,010 --> 00:02:32,150 Speaker 2: through. I think that the harsh reality of the numbers 50 00:02:32,150 --> 00:02:35,550 Speaker 2: now... And he did allude to, as well, that he 51 00:02:35,550 --> 00:02:40,260 Speaker 2: wants to see inflation remaining accelerated before he moves again. 52 00:02:40,260 --> 00:02:43,139 Speaker 2: He wants to see that wages, numbers, are picking up. 53 00:02:43,139 --> 00:02:44,730 Speaker 2: So, in a sense, he's looking at the rear view mirror, 54 00:02:44,730 --> 00:02:47,510 Speaker 2: adjusting policy, which doesn't take effect for another six to 55 00:02:47,510 --> 00:02:50,280 Speaker 2: 12 months. So, I recall (Glen Stevens) , when he was 56 00:02:50,280 --> 00:02:54,899 Speaker 2: Governor, certainly (Ian McFarland) , they preemptively adjusted monetary policy. Now, 57 00:02:54,900 --> 00:02:57,340 Speaker 2: they didn't always get it right, but if they didn't, 58 00:02:57,580 --> 00:03:00,139 Speaker 2: they would reverse that policy action, whereas Dr. Lowe seems 59 00:03:00,139 --> 00:03:02,230 Speaker 2: to be one that looks at the numbers, waits for 60 00:03:02,230 --> 00:03:04,980 Speaker 2: the numbers to come through. Although, as we saw last 61 00:03:04,980 --> 00:03:08,380 Speaker 2: week, perhaps it's a bit more of looking ahead and 62 00:03:08,380 --> 00:03:12,450 Speaker 2: realizing that, with their forecast of inflation hitting six percent, 63 00:03:12,510 --> 00:03:15,940 Speaker 2: underlying inflation getting above four and a half percent, that 64 00:03:15,940 --> 00:03:17,299 Speaker 2: we know that there's got to be a lot of 65 00:03:17,300 --> 00:03:20,040 Speaker 2: more rate hikes to come in before they get inflation down. 66 00:03:20,669 --> 00:03:23,700 Speaker 1: And as you mentioned, the US Federal Reserve and Bank 67 00:03:23,700 --> 00:03:27,340 Speaker 1: of England hiked rates last week. Markets went up and 68 00:03:27,340 --> 00:03:30,350 Speaker 1: then they really went down. The Bank of England commentary 69 00:03:30,350 --> 00:03:33,739 Speaker 1: was really interesting, because the war in Ukraine, energy prices, 70 00:03:33,870 --> 00:03:38,070 Speaker 1: has really cast a shadow over growth in the UK, 71 00:03:38,070 --> 00:03:40,250 Speaker 1: it seems. The Bank of England was actually quite downbeat. 72 00:03:40,470 --> 00:03:42,260 Speaker 2: It was an interesting one, and I guess this is 73 00:03:42,260 --> 00:03:45,460 Speaker 2: going to be the dilemma that all economists, all central 74 00:03:45,460 --> 00:03:47,770 Speaker 2: banks, are going to be looking at over the months 75 00:03:47,770 --> 00:03:50,340 Speaker 2: ahead, not just the weeks ahead, but certainly the months ahead. " 76 00:03:50,340 --> 00:03:53,270 Speaker 2: Do we have this..." God, do I say it... " Stagflation, 77 00:03:53,270 --> 00:03:56,030 Speaker 2: where you get really high inflation with really weak growth 78 00:03:56,030 --> 00:03:59,390 Speaker 2: that, whatever the central banks do to try to contain 79 00:03:59,390 --> 00:04:03,690 Speaker 2: inflation, really hits financial markets and the real economy really, 80 00:04:03,690 --> 00:04:05,720 Speaker 2: really hard." So, do we get the scenario, say, at 81 00:04:05,720 --> 00:04:09,300 Speaker 2: the end of this year, where inflation around the world, 82 00:04:09,390 --> 00:04:11,800 Speaker 2: in most countries, is sort of four or five percent, 83 00:04:11,800 --> 00:04:15,440 Speaker 2: but GDP is at one percent, and unemployment is starting to creep 84 00:04:15,440 --> 00:04:17,990 Speaker 2: up again. That's what I think is feeding into the 85 00:04:17,990 --> 00:04:20,500 Speaker 2: commentary and the analysis now. " Can we get away with 86 00:04:20,500 --> 00:04:23,740 Speaker 2: more rate hikes without actually hitting the economy really hard?" 87 00:04:24,110 --> 00:04:26,080 Speaker 1: It was quite the week last week, Steven, a little 88 00:04:26,080 --> 00:04:27,930 Speaker 1: quieter in the next few days. 89 00:04:28,270 --> 00:04:32,180 Speaker 2: Yeah, not really headline grabbing news, although it's all important 90 00:04:32,279 --> 00:04:33,589 Speaker 2: in its own way. One of the things that I 91 00:04:33,589 --> 00:04:35,970 Speaker 2: think I'll be looking at, and most of my colleagues 92 00:04:35,970 --> 00:04:38,001 Speaker 2: in the markets will be looking at, is an (NAB Business Confidence Survey) 93 00:04:38,001 --> 00:04:43,710 Speaker 2: . This will incorporate a lot of that inflation news 94 00:04:43,710 --> 00:04:46,779 Speaker 2: that the costs and price pressures coming through, both in 95 00:04:46,810 --> 00:04:49,170 Speaker 2: input costs to the business sector that the NAB will 96 00:04:49,430 --> 00:04:53,380 Speaker 2: be reporting on. They'll also be reporting on expected selling 97 00:04:53,380 --> 00:04:56,440 Speaker 2: prices. So, " Are businesses passing on all these extra costs 98 00:04:56,440 --> 00:04:59,810 Speaker 2: that they're seeing?" And really importantly, the bit that I 99 00:04:59,810 --> 00:05:02,040 Speaker 2: love most about the NAB survey at the moment is 100 00:05:02,480 --> 00:05:06,700 Speaker 2: there's a question on labor costs, so wages, in other 101 00:05:06,700 --> 00:05:09,730 Speaker 2: words, and that last survey hit a record high, that 102 00:05:09,730 --> 00:05:13,479 Speaker 2: the number of firms saying that they're going to be increasing their 103 00:05:13,480 --> 00:05:16,700 Speaker 2: wages payments, so the wages bill of running their business, 104 00:05:16,700 --> 00:05:19,260 Speaker 2: was at a record high for the survey. If that 105 00:05:19,260 --> 00:05:22,089 Speaker 2: increases again, then I think we can be absolutely sure 106 00:05:22,089 --> 00:05:23,960 Speaker 2: that it's only a matter of a time before the 107 00:05:23,960 --> 00:05:26,219 Speaker 2: official data show that pickup in wages. 108 00:05:26,940 --> 00:05:29,040 Speaker 1: I mean payroll and wages data is all the go 109 00:05:29,040 --> 00:05:30,770 Speaker 1: for the next six weeks. I mean, can you imagine 110 00:05:30,770 --> 00:05:34,060 Speaker 1: what happens when official data comes out and it's not 111 00:05:34,060 --> 00:05:35,820 Speaker 1: rising? What does the Reserve Bank do then? 112 00:05:36,140 --> 00:05:40,700 Speaker 2: Well, that would be a dilemma. There's some probability that does 113 00:05:40,700 --> 00:05:45,001 Speaker 2: happen, but thankfully, later this week, we also see the (ABS) 114 00:05:45,001 --> 00:05:47,839 Speaker 2: measure of payrolls and wages growth. It's sort of 115 00:05:47,839 --> 00:05:50,820 Speaker 2: like an aggregate wage number. So, it's not an individual 116 00:05:50,820 --> 00:05:53,900 Speaker 2: worker wages, so how much you and I are getting 117 00:05:54,380 --> 00:05:56,469 Speaker 2: each week, but it's the aggregate cost to business of 118 00:05:56,470 --> 00:05:59,800 Speaker 2: their wages billed. So, it incorporates the number of people 119 00:05:59,800 --> 00:06:02,570 Speaker 2: that are being employed, the number of hours worked, and 120 00:06:02,570 --> 00:06:05,320 Speaker 2: also the increase in wages. So, in a sense, it's 121 00:06:05,320 --> 00:06:07,610 Speaker 2: going to be a slightly more difficult number to read, 122 00:06:07,610 --> 00:06:09,640 Speaker 2: but we know, over the last few months, that number 123 00:06:09,640 --> 00:06:12,779 Speaker 2: has been picking up. Again, as tentative evidence, the wages side of 124 00:06:13,130 --> 00:06:14,339 Speaker 2: the economy is also picking up. 125 00:06:14,930 --> 00:06:17,060 Speaker 1: Great time to be an economist, Steven. I mean, I 126 00:06:17,060 --> 00:06:19,440 Speaker 1: don't want to be disrespectful to all those economists out 127 00:06:19,440 --> 00:06:21,740 Speaker 1: there, including you, but there are times when not much 128 00:06:21,740 --> 00:06:24,580 Speaker 1: happens. This is not one of those times. 129 00:06:24,580 --> 00:06:26,790 Speaker 2: It's certainly not one of those times. And when the central 130 00:06:26,790 --> 00:06:29,150 Speaker 2: banks are on hold for six and 12 months, when 131 00:06:29,360 --> 00:06:33,200 Speaker 2: inflation is comfortably within the target range, we're at sort 132 00:06:33,200 --> 00:06:36,530 Speaker 2: of close to full employment, budget policy is pretty boring, 133 00:06:37,300 --> 00:06:38,640 Speaker 2: you've got to make up a bit of a story 134 00:06:38,640 --> 00:06:40,310 Speaker 2: actually, to justify your views. 135 00:06:40,500 --> 00:06:42,310 Speaker 1: Steven, you would never make it up. Would you? 136 00:06:42,380 --> 00:06:44,610 Speaker 2: Not really, but you then look for something that's a 137 00:06:44,610 --> 00:06:48,080 Speaker 2: bit more interesting to people. So, that's where the house prices become 138 00:06:48,080 --> 00:06:50,830 Speaker 2: important, or the cost of running a business, these sorts 139 00:06:50,830 --> 00:06:53,170 Speaker 2: of things. But at the moment, there's no lack of 140 00:06:53,170 --> 00:06:56,620 Speaker 2: information, and every person I'm talking to has got a 141 00:06:56,620 --> 00:06:58,640 Speaker 2: particular issue, be it with the cost of running their 142 00:06:58,640 --> 00:07:02,339 Speaker 2: business, the skill shortage that's evident, the rate hikes, these 143 00:07:02,339 --> 00:07:05,049 Speaker 2: sorts of things. So, there's a lot of issues for both investors 144 00:07:05,050 --> 00:07:07,280 Speaker 2: and business owners. It's a really hot time. 145 00:07:07,520 --> 00:07:08,589 Speaker 1: Stephen, have a great week. 146 00:07:08,970 --> 00:07:09,650 Speaker 2: Thank you, Sean. 147 00:07:09,990 --> 00:07:12,870 Speaker 1: That's economist Stephen Kakoulis, better known as The Kouk. You can 148 00:07:12,870 --> 00:07:15,470 Speaker 1: find him thekouk. com, and follow him on Twitter using 149 00:07:15,470 --> 00:07:18,900 Speaker 1: the handle thekouk. Definitely follows Stephen on Twitter. He was 150 00:07:18,900 --> 00:07:21,700 Speaker 1: very entertaining last week. So, do that. I'm Sean Alma, 151 00:07:21,700 --> 00:07:23,850 Speaker 1: and this is Fear and Greed, the Week Ahead.