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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask an answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson and every Monday morning, we're joined by

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Speaker 1: economists Stephen Coucoulis to look at the week ahead. You'll

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Speaker 1: find him at the kook dot com that's t A. G.

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Speaker 1: Kouk dot com and sharing his views on LinkedIn as well. Stephen,

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Speaker 1: good morning.

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Speaker 2: Good morning, Michael.

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Speaker 1: I know we say this every week, but last week,

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Speaker 1: what a week, a massive week, rare. We have the

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Speaker 1: RBA increasing rates on Tuesday, then the unemployment numbers came

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Speaker 1: through jump to four point three percent on Thursday. This week,

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Speaker 1: this week, look by comparison, is slightly quieter in terms

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Speaker 1: of the data that's being released. But we still get

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Speaker 1: monthly inflation figures for February. What are we going to see?

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Speaker 2: Yes, the monthly inflation numbers you might think would be

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Speaker 2: really important, but the RBA and the markets are still

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Speaker 2: cautious in their interpretation. We don't have a long enough

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Speaker 2: history to sort of definitively say that this monthly number

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Speaker 2: has got a lot of information about the inflation rate. Yeah,

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Speaker 2: we still need to see a couple of months, and

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Speaker 2: then I say three months in a row equals a quarter,

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Speaker 2: so o Zerveback is still keen on the quarterly data,

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Speaker 2: which doesn't come out till the end of April. The

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Speaker 2: March quarter numbers. However, there is still information in these

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Speaker 2: monthly numbers, which is why the Bureau of Statistics moved

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Speaker 2: to start producing them just recently, and they will show

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Speaker 2: some price pressures emerging up and down. These numbers will

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Speaker 2: not include any of the effect of the jump in

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Speaker 2: oil prices that's all occurred since the end of February.

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Speaker 2: And these are February numbers.

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Speaker 1: I was going to ask you about that. Does that

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Speaker 1: mean that they are I don't want to say, but

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Speaker 1: somewhat irrelevant because I mean this, we are three weeks

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Speaker 1: now into the Middle East conflict, So does everything that's

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Speaker 1: happened since then kind of supersede the February figures.

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Speaker 2: The short answer is yes, Okay, it's it's just a

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Speaker 2: quirk of the calendar. You can't blame the ABS for

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Speaker 2: producing February numbers that end in February, and then the

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Speaker 2: Gulf War really intensifies a few days into March. It

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Speaker 2: is what it is, and that's what we economists are

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Speaker 2: always lamenting, which we need next month's numbers, next quarters numbers.

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Speaker 2: So look, they'll have they'll have information. As we heard

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Speaker 2: from the Governor Michelle Bullock at her press conference last

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Speaker 2: week after she announced the rate hike that even aside

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Speaker 2: from the obvious effects of the oil price shock, prior

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Speaker 2: to that, the RBA was worried about the inflation rate,

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Speaker 2: it was still elevated relative to their targets, and they

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Speaker 2: probably would have hiked I'm paraphrasing, they probably would have

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Speaker 2: hiked even had there been no oil shock. So these

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Speaker 2: numbers will be somewhat important just to that eight or

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Speaker 2: otherwise that assessment from the Reserve Bank governor. And so

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Speaker 2: we're looking for a headline figure. You know, this is

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Speaker 2: again we're still learning how to forecast this. Dare I say,

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Speaker 2: but around about three point seven three point eight percent

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Speaker 2: in annual terms, that does not I just want to

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Speaker 2: episode include the petrol shock that we've seen in recent weeks.

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Speaker 2: Now that trimmed me a little bit better, probably around

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Speaker 2: that three point three three point four percent, so still

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Speaker 2: above the midpoint of the RBA target. And as I mentioned,

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Speaker 2: as the Governor mentioned last week. That's why they hiked

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Speaker 2: interest rates because even aside from the oil shock, global

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Speaker 2: conflict issues, they were worried that inflation was not getting

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Speaker 2: back to target quickly enough.

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Speaker 1: And I know that you're paraphrasing there with a lot

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Speaker 1: of that, But if you take that point and say

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Speaker 1: that even if you excluded the oil price shock and

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Speaker 1: the flow on effect that that has for inflation here,

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Speaker 1: and they would have done that anyway, then you add

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Speaker 1: in the oil price pressure, why then was it? So

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Speaker 1: why was the decision split five to four on this?

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Speaker 2: A really good question? And I'll give what my interpretation

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Speaker 2: is because we don't know exactly, so my interpretation is,

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Speaker 2: and this is an issue that's doing the rounds a

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Speaker 2: little bit. We do know that when we do get

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Speaker 2: oil price shocks, and there's been a history of them

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Speaker 2: over the last fifty five years or so, there's been

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Speaker 2: periods where there's been these incredible lifts in oil prices

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Speaker 2: and the impact on inflation has been clear. What is

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Speaker 2: also apparent, and we're seeing this in the consumer sentiment

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Speaker 2: numbers and indicators like that, is that we consumers don't

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Speaker 2: like them when we're putting more money into our petrol

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Speaker 2: tanks just to travel the same distance. Because the price

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Speaker 2: of petrol's gone up, we have less discretionary spending to

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Speaker 2: spend elsewhere, so the economy slows down. So some of

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Speaker 2: the theory economic theory about how oil shocks impact the economy,

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Speaker 2: and I hate to be an economist too much, but

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Speaker 2: the long run, short run, the short run, yes, the

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Speaker 2: price of everything goes up because the petrol price goes

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Speaker 2: up and transport logistics, airfares go up. For everything that's

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Speaker 2: not really significantly affected by petrol prices, things like school fees,

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Speaker 2: council rates, and things which don't have much of an

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Speaker 2: oil effect in them, the price of those will moderate

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Speaker 2: because we're spending less on them. So you get the

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Speaker 2: non oil part of the economy weakening. You get the

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Speaker 2: non oil inflation parts of the consumer price index slowing

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Speaker 2: down relative that would have been. It's like, I'm old

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Speaker 2: enough to remember, I haven't anyone use it recently, but

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Speaker 2: maybe we can resurrect this one mark. The petrol price

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Speaker 2: high or oil price lists are attacks on economic growth.

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Speaker 2: It's sort of like an imposition. So just imagine if

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Speaker 2: the government had put on an extra fifty cents on

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Speaker 2: their fuel excise apart from the political pain, it would

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Speaker 2: actually slow the economy down. So regardless of the source

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Speaker 2: of the reason why petrol prices have jumped fifty plus

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Speaker 2: sense a lease, it is a contractionary thing on the economy.

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Speaker 2: That's why I think there were four people thinking, well,

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Speaker 2: let's just wait and see a little bit longer.

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Speaker 1: We talk about the effect that interest rate heights obviously

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Speaker 1: have on sentiment and household spending and people and your

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Speaker 1: willingness to go out and spend when you know that

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Speaker 1: you've got to be handing over a little bit more

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Speaker 1: money each week or each month to the bank. Just

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Speaker 1: how big is the impact from oil and petrol in

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Speaker 1: terms of the effect that it has on consumers and

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Speaker 1: our willingness to go Because there was some modeling last

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Speaker 1: week from I think it was from City suggesting just

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Speaker 1: how big this hit could be, and it actually could

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Speaker 1: end up being putting a greater kind of break on

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Speaker 1: spending than a rate hike itself.

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Speaker 2: Indeed, and in fact the Treasure I was like in

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Speaker 2: Mouth last week to go to the Australian Business Economists

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Speaker 2: function where the treasure gave his pre budget talk and

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Speaker 2: he started off his speech with some scenarios because again

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Speaker 2: he like all me immortals and the Treasury Department, I've

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Speaker 2: really got a model scenarios, and there's sort of central

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Speaker 2: case scenario. All hobbs around one hundred US dollars a

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Speaker 2: barrel stays there for a considerable period. That's the critical thing.

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Speaker 2: It doesn't quickly revert back to seventy dollars a bowl.

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Speaker 2: That it stays there for a period of time. In

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Speaker 2: terms of the effect on bottom line economic growth, it

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Speaker 2: reduces it by about point three or point four percentage

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Speaker 2: points relative what growth would have been otherwise. Okay, so

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Speaker 2: if you were forecasting GDP growth of say one point seven,

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Speaker 2: you're probably going to be cutting that to about one

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Speaker 2: point three one point four per centing in annual terms,

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Speaker 2: because that subtraction, that negativity, if you like, is the

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Speaker 2: fact that you and I and everybody else are saying, well,

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Speaker 2: if I've got to put an extra thirty forty fifty

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Speaker 2: bucks a week into my car just to get to

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Speaker 2: do with this, as I said, the same distance as

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Speaker 2: I was seeing before, I might not spend as much

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Speaker 2: in the in the food shop, in the groceries. I

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Speaker 2: won't go on quite the same sort of spending on

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Speaker 2: other issues and so that activity actually slows down.

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Speaker 1: You mentioned the treasurer and it just jogged my memory

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Speaker 1: of something else that he said last week talking about

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Speaker 1: Australia's productivity goals and the fact that we will not

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Speaker 1: achieve as a nation our key rate of productivity until

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Speaker 1: I think twenty thirty one. What does that mean, what

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Speaker 1: does that look like? And is there any way to

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Speaker 1: increase that pace or is that as good as it's

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Speaker 1: going to get.

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Speaker 2: Yeah, productivity, that was the one I thought the speech

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Speaker 2: was really good, but that was one area that I

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Speaker 2: put my hand on heartthed on. No, that's a bit

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Speaker 2: sad that we can't get that productivity. It's not like

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Speaker 2: interest rates. You hight them cut. The effect is quite quick.

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Speaker 2: A matter of months you start to get the impact

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Speaker 2: of interest rate changes on the economy or tax changes.

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Speaker 2: Here's an income tax cut, we think, gipe, here's an

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Speaker 2: extra money in our pocket. So they have a really

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Speaker 2: quick effect. Productivity is the sort of thing that is distorted.

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Speaker 2: I'll start by saying by tax policy that might change

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Speaker 2: the way I invest my money, or that a business

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Speaker 2: might invest its money. And so instead of going and

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Speaker 2: getting the latest wiz bang machinery that will be more

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Speaker 2: efficient at producing things or having, say, in the case

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Speaker 2: of the building sector, having a really good building project

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Speaker 2: tied up in red tape because it's got some crazy

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Speaker 2: regulations that they've got to meet, and so that building

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Speaker 2: is delayed. That's really damaging for productivity. Once you change

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Speaker 2: those things, which is the government's trying to do, it

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Speaker 2: takes time and a long time for them to work through.

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Speaker 2: So yes, to get that productivity back to where we

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Speaker 2: would like it to be is still later, much later

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Speaker 2: rather than sooner.

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Speaker 1: We are running out of time. And it's because you

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Speaker 1: keep saying things that remind me of more that's happened

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Speaker 1: over the last week. We said it's been a big week,

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Speaker 1: didn't we The other big one that we need to

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Speaker 1: mention labor force figures. They came out last Thursday, and

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Speaker 1: I think it was added nearly forty nine thousand jobs

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Speaker 1: in February. Most of those were part time. But the

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Speaker 1: key here is that the number of people working are

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Speaker 1: looking for work also went up significantly, and as a result,

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Speaker 1: the unemployment rate went up to four point three percent,

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Speaker 1: still strong though right it was a.

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Speaker 2: Lucky tip where everybody got a really good prize. If

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Speaker 2: you wanted to be upbeat about the economy, you focus

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Speaker 2: on the forty nine thousand jobs, the fact that four

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Speaker 2: point three percent unemployment still low, the participation rate went up,

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Speaker 2: So there were things there that you think, yes, that's

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Speaker 2: I'm an upbeat person about the economy. However, if you

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Speaker 2: sort of wanted to be a bit critical of the RBA,

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Speaker 2: and some people do, and I think, well, what is

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Speaker 2: actually showing As you alluded to all of the jobs

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Speaker 2: and then some were part time, Yeah, ours worked fell

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Speaker 2: So while employment was strong, the average amount of time

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Speaker 2: each of us were working per week declined a bit. Yeah,

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Speaker 2: the uneployment rate did go up from four point one

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Speaker 2: to four point three percent. So it was one of

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Speaker 2: those ones where I think at the end of the day,

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Speaker 2: when the sort of dust settle. In the hours after

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Speaker 2: the numbers came out, people were sort of saying, it's

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Speaker 2: in the groove. It's one of those numbers. Yeah, it's okay,

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Speaker 2: it's fine. There's nothing to be scared about in terms

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Speaker 2: of an overheating labor market, nor is anything to be

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Speaker 2: scared about that the labor markets deteriorating rapidly, and as

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Speaker 2: an economist. I either like a boom or crash. I

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Speaker 2: can't think of an adjective for something that's in the

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Speaker 2: middle other than beige. Beige.

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Speaker 1: One last thing just on that and this is just

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Speaker 1: my curiosity more than anything. When you have a lot

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Speaker 1: more people working or looking for work, right that that

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Speaker 1: number kind of increased significantly, we saw that. Does that

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Speaker 1: tell us anything? Does that tell us anything about kind

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Speaker 1: of the state of the economy or the pressure on

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Speaker 1: households that more people are out out there looking for work?

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Speaker 2: Yes, I think again, the short answer is yes, they're

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Speaker 2: again months and month, these numbers can be volatile because

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Speaker 2: they are just a sample of the workforce. But over

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Speaker 2: time they're a really good guy to what's happening. But

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Speaker 2: month to month they can be a little bit political.

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Speaker 2: But you're quite right. When people are under financial pressure,

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Speaker 2: which I think a significant proportion of the economy are now,

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Speaker 2: you tend to get people saying I need to work

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Speaker 2: more hours, I need to get more hours I can

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Speaker 2: pay my bills, or my partner who might have been

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Speaker 2: out of the paid workforce whatever reason they might need

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Speaker 2: to come into the workforce. So you do get that

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Speaker 2: encouraged worker effect from necessity rather than necessarily the economy

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Speaker 2: being strong. But it is one of these things where

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Speaker 2: demand for labor, sorry, demand to supply your labor as

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Speaker 2: a worker and a potential worker, does increase when financial

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Speaker 2: pressures come through. There's some evidence that that is definitely

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Speaker 2: the case. And again in the interest rate shocks of

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Speaker 2: years gone by, you've seen the participation rate go up

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Speaker 2: even though the economy has been weak, because people need

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Speaker 2: I need more hours. Just pay my bills.

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Speaker 1: Every Monday, I learn more from you. I reckon by

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Speaker 1: the end of this year. You could give me a

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Speaker 1: test and I would pass this with flying colors. It's

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Speaker 1: like my own private economics tutorial every Monday.

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Speaker 2: Will I'll do that, Michael. I'll sort of send a

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Speaker 2: few little Q and a a multiple choice questions. So yeah,

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Speaker 2: at least even if we don't know the answer, you

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Speaker 2: have a guess. That's the joy of multiple choice.

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Speaker 1: Yeah, pub trivia cook star like that. All right, Thank

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Speaker 1: you very much, Stephen, Thanks Michael. That was economist Stephen

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Speaker 1: COO Cooles, better known as the Kook. Find him at

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Speaker 1: the Kook dot com, t h G K or uk

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Speaker 1: dot com, or follow him as well on LinkedIn, where

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Speaker 1: he shares his insights on Michael Thompson and this fear

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Speaker 1: and greed.

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Speaker 2: Q and A