1 00:00:05,430 --> 00:00:07,500 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:07,560 --> 00:00:10,738 Sean Aylmer: Aylmer, and as always, I'm joined by economist, Stephen Koukoulas. 3 00:00:10,740 --> 00:00:13,379 Sean Aylmer: You'll find him at thekouk. com, T- H- E- K- O- U- 4 00:00:13,380 --> 00:00:18,449 Sean Aylmer: K, thekouk.com, and on X, using the handle TheKouk. Stephen, 5 00:00:18,449 --> 00:00:18,960 Sean Aylmer: good morning. 6 00:00:19,260 --> 00:00:20,220 Stephen Koukoulas: Very good morning, Sean. 7 00:00:20,489 --> 00:00:23,610 Sean Aylmer: Now, we've got a very big week coming up. We've 8 00:00:23,610 --> 00:00:25,799 Sean Aylmer: got a Reserve Bank board meeting. Before we jump into 9 00:00:25,800 --> 00:00:29,130 Sean Aylmer: that, just quickly, a bunch of partial indicators last week, 10 00:00:29,190 --> 00:00:33,358 Sean Aylmer: retail sales, building approval, things like that. When the Reserve 11 00:00:33,360 --> 00:00:36,479 Sean Aylmer: bank board sits down, what are they looking at in terms 12 00:00:36,479 --> 00:00:37,199 Sean Aylmer: of the economy? 13 00:00:37,860 --> 00:00:40,590 Stephen Koukoulas: It's really interesting because, of course, what comes out tomorrow 14 00:00:40,590 --> 00:00:43,918 Stephen Koukoulas: in addition to the decision on interest rates is the 15 00:00:43,920 --> 00:00:49,019 Stephen Koukoulas: quarterly statement on monetary policy, which is usually 60 to 70 pages 16 00:00:49,469 --> 00:00:50,820 Stephen Koukoulas: of really good- 17 00:00:50,820 --> 00:00:51,630 Sean Aylmer: What a joy. What a joy. 18 00:00:51,750 --> 00:00:54,480 Stephen Koukoulas: Yeah, it's fun to read, but the thing about it 19 00:00:54,480 --> 00:00:57,090 Stephen Koukoulas: is, it is actually very, very comprehensive and very good. 20 00:00:57,270 --> 00:01:00,510 Stephen Koukoulas: What do they look at? Your question. There's probably a 21 00:01:00,510 --> 00:01:04,830 Stephen Koukoulas: pecking order inflation and the labor market, unemployment and wages 22 00:01:04,889 --> 00:01:08,579 Stephen Koukoulas: are the two or three items that are prominent. They've 23 00:01:08,580 --> 00:01:11,219 Stephen Koukoulas: got to get them right, but that doesn't mean that 24 00:01:11,219 --> 00:01:15,089 Stephen Koukoulas: the other indicators on the economy are unimportant because they 25 00:01:15,090 --> 00:01:18,420 Stephen Koukoulas: feed into job creation and inflation pressures. And this is 26 00:01:18,420 --> 00:01:22,440 Stephen Koukoulas: where last week's data was genuinely worrying. We had retail 27 00:01:22,440 --> 00:01:25,650 Stephen Koukoulas: sales going backwards. And in fact, in annual terms, it 28 00:01:25,650 --> 00:01:29,189 Stephen Koukoulas: was only up 0. 8%, which the statistician said was 29 00:01:29,190 --> 00:01:34,260 Stephen Koukoulas: the weakest on record. Putting aside the pandemic of course, 30 00:01:34,260 --> 00:01:38,160 Stephen Koukoulas: and the introduction of the GST in the year 2000, this 31 00:01:38,160 --> 00:01:41,700 Stephen Koukoulas: is the weakest that they've had on record. We consumers 32 00:01:42,120 --> 00:01:45,179 Stephen Koukoulas: are hunkering down. We are stopping our spending, we're only 33 00:01:45,179 --> 00:01:49,290 Stephen Koukoulas: spending on essentials. And that's a really weak side. We 34 00:01:49,290 --> 00:01:50,940 Stephen Koukoulas: also had building approvals. And while they were up a 35 00:01:50,940 --> 00:01:54,720 Stephen Koukoulas: smidge in the month, the trend is down, down, down, 36 00:01:54,720 --> 00:01:57,059 Stephen Koukoulas: and we're not building enough houses. And that housing issue 37 00:01:57,059 --> 00:01:59,969 Stephen Koukoulas: is just getting worse because of that lack of new 38 00:01:59,969 --> 00:02:02,790 Stephen Koukoulas: supply when demand is running so hot. Rents and house 39 00:02:02,790 --> 00:02:06,570 Stephen Koukoulas: prices are still bubbling along. And the other worrying thing, 40 00:02:06,570 --> 00:02:09,690 Stephen Koukoulas: Sean, before I finish up, is the international trade data, 41 00:02:09,690 --> 00:02:13,290 Stephen Koukoulas: which usually doesn't get a lot of attention, showed that 42 00:02:13,290 --> 00:02:16,169 Stephen Koukoulas: the trade surplus of Australia's running, and we've banged on 43 00:02:16,169 --> 00:02:18,870 Stephen Koukoulas: about that for the last year or two, is shrinking 44 00:02:18,870 --> 00:02:20,880 Stephen Koukoulas: at a rapid rate of knots. It's not just the 45 00:02:20,880 --> 00:02:24,419 Stephen Koukoulas: price of our exports, it's the volume. And so, my 46 00:02:24,419 --> 00:02:26,790 Stephen Koukoulas: friends at CBA did a little bit of a calculation 47 00:02:26,790 --> 00:02:30,120 Stephen Koukoulas: based on these numbers. And it looks like net exports, 48 00:02:30,300 --> 00:02:34,500 Stephen Koukoulas: that component of GDP will be cutting somewhere between half 49 00:02:34,500 --> 00:02:37,530 Stephen Koukoulas: and three quarters of percent off March quarter GDP when 50 00:02:37,679 --> 00:02:38,821 Stephen Koukoulas: we get those numbers in a few weeks time. 51 00:02:38,821 --> 00:02:39,151 Sean Aylmer: Wow. 52 00:02:39,750 --> 00:02:43,950 Stephen Koukoulas: The March quarter GDP result, using these partial indicators and 53 00:02:43,950 --> 00:02:46,290 Stephen Koukoulas: throwing them into the melting pot looks crooked again. 54 00:02:47,639 --> 00:02:52,559 Sean Aylmer: Why is inflation still rising when you have a consumption 55 00:02:52,590 --> 00:02:54,989 Sean Aylmer: in all sorts? And we had Woolies and Coles come 56 00:02:54,990 --> 00:02:57,599 Sean Aylmer: out last week as well. They basically said people are 57 00:02:57,599 --> 00:03:02,310 Sean Aylmer: buying promotional items. They're hunkering down. Why is inflation still 58 00:03:02,310 --> 00:03:02,910 Sean Aylmer: rising then? 59 00:03:03,330 --> 00:03:06,990 Stephen Koukoulas: Yeah, that Coles inflation 2.2% I think they said, the items that go 60 00:03:06,990 --> 00:03:11,190 Stephen Koukoulas: through their checkout. And this is the thing, you've hit 61 00:03:11,190 --> 00:03:14,459 Stephen Koukoulas: the nail on the head. Coles and Woolies don't sell haircut. They don't sell 62 00:03:16,829 --> 00:03:19,169 Stephen Koukoulas: a lot of rents, dwelling rent. They don't sell a 63 00:03:19,169 --> 00:03:21,270 Stephen Koukoulas: lot of the things where the services side of the 64 00:03:21,270 --> 00:03:23,460 Stephen Koukoulas: economy is where a lot of the price pressures are 65 00:03:23,460 --> 00:03:27,419 Stephen Koukoulas: still coming through. When we look at why inflation's sticky, 66 00:03:27,419 --> 00:03:29,849 Stephen Koukoulas: why it's stubborn and why it's not getting quickly to 67 00:03:29,849 --> 00:03:33,240 Stephen Koukoulas: the RBA target branch or indeed the Federal Reserve's target range for that matter, 68 00:03:33,660 --> 00:03:36,930 Stephen Koukoulas: it's the services side. Goods prices are weakening, they're down. 69 00:03:36,930 --> 00:03:39,720 Stephen Koukoulas: Yet in the recent inflation number, lamb prices, you do 70 00:03:39,720 --> 00:03:45,150 Stephen Koukoulas: the lamb, - 16%. There's some food stuffs and goods prices 71 00:03:45,150 --> 00:03:48,179 Stephen Koukoulas: that are coming down, but it's these services prices that 72 00:03:48,179 --> 00:03:51,599 Stephen Koukoulas: are really persistent. And that's because there's still shortages in 73 00:03:51,599 --> 00:03:57,030 Stephen Koukoulas: them. Things like insurance premiums, arguably climate related. The insurance 74 00:03:57,030 --> 00:04:01,800 Stephen Koukoulas: companies are really ramping up their premiums for both consumers 75 00:04:01,890 --> 00:04:05,339 Stephen Koukoulas: and businesses because it's hard to get insurance when you're 76 00:04:05,340 --> 00:04:08,940 Stephen Koukoulas: in a flood- prone area or bushfires. You think of 77 00:04:08,940 --> 00:04:11,099 Stephen Koukoulas: the last few years, insurance companies are not going to 78 00:04:11,100 --> 00:04:13,080 Stephen Koukoulas: give away insurance if they're going to be paying out 79 00:04:13,080 --> 00:04:16,919 Stephen Koukoulas: more than they're getting it in premiums. That's why inflation is sticky. 80 00:04:16,920 --> 00:04:18,659 Stephen Koukoulas: And there's a debate going on, and I'm hoping the 81 00:04:18,660 --> 00:04:23,309 Stephen Koukoulas: RBA addresses tomorrow is, is part of the inflation problem 82 00:04:23,309 --> 00:04:26,428 Stephen Koukoulas: or persistence that we're seeing right now coming from issues 83 00:04:26,428 --> 00:04:29,099 Stephen Koukoulas: that interest rates have no effect on? Petrol's the other high- 84 00:04:29,100 --> 00:04:33,120 Stephen Koukoulas: profile one. The RBA could hike interest rates 1, 000 basis 85 00:04:33,120 --> 00:04:36,090 Stephen Koukoulas: points tomorrow and have no effect on the global oil price. 86 00:04:36,990 --> 00:04:41,009 Sean Aylmer: Eventually though, people will stop paying for comprehensive car insurance. 87 00:04:41,099 --> 00:04:44,849 Sean Aylmer: They'll under- insure their home. It has to... I suppose 88 00:04:44,849 --> 00:04:47,969 Sean Aylmer: the word sticky doesn't mean it's stuck. It actually just 89 00:04:47,969 --> 00:04:48,899 Sean Aylmer: means it's slow. 90 00:04:49,829 --> 00:04:53,070 Stephen Koukoulas: An excellent point, yes. And we are hearing from a number of 91 00:04:53,070 --> 00:04:57,540 Stephen Koukoulas: different groups that even health insurance is something that's being 92 00:04:57,540 --> 00:05:00,328 Stephen Koukoulas: scaled back because the premiums are relatively high. And if 93 00:05:00,330 --> 00:05:02,639 Stephen Koukoulas: you are young and reasonably healthy, why am I forking 94 00:05:02,639 --> 00:05:05,129 Stephen Koukoulas: out this X hundred dollars per month on something that 95 00:05:05,129 --> 00:05:08,010 Stephen Koukoulas: I've got a low probability of using? Let alone my 96 00:05:08,010 --> 00:05:12,089 Stephen Koukoulas: household hasn't burned down or flooded. I'll be okay, Jack. That 1, 97 00:05:12,180 --> 00:05:15,928 Stephen Koukoulas: 000 bucks a year on home and contents insurance, oh, 98 00:05:15,928 --> 00:05:19,529 Stephen Koukoulas: whatever it is, even more than that I'm sure, I'll live without it and 99 00:05:19,529 --> 00:05:23,849 Stephen Koukoulas: hope that my house doesn't burn down. There are externalities 100 00:05:23,850 --> 00:05:26,730 Stephen Koukoulas: that come from these price pressures. A really fascinating time. 101 00:05:27,540 --> 00:05:31,529 Sean Aylmer: Okay. That is what the Reserve bank is facing tomorrow. 102 00:05:31,529 --> 00:05:32,370 Sean Aylmer: What are they going to do? 103 00:05:32,550 --> 00:05:34,620 Stephen Koukoulas: Nothing. I think everybody- 104 00:05:34,620 --> 00:05:37,258 Sean Aylmer: Come on. I need more than that. I need more. 105 00:05:37,410 --> 00:05:38,909 Sean Aylmer: What are they doing after all that? Nothing. 106 00:05:39,900 --> 00:05:44,099 Stephen Koukoulas: Rates on hold. Put it this way, they're not going to cut for the inflation reasons 107 00:05:44,100 --> 00:05:46,290 Stephen Koukoulas: that we mentioned, that surprise that we saw a couple 108 00:05:46,290 --> 00:05:48,330 Stephen Koukoulas: of weeks ago. They're not going to hike either because of 109 00:05:48,510 --> 00:05:51,059 Stephen Koukoulas: the weakness that we're just talking about in retail and 110 00:05:51,059 --> 00:05:53,370 Stephen Koukoulas: net exports and these sorts of things. And it's one 111 00:05:53,370 --> 00:05:55,170 Stephen Koukoulas: of these classic cases, I think it's a bit of 112 00:05:55,170 --> 00:05:56,609 Stephen Koukoulas: a cliche. It's not what they do, it's what they 113 00:05:56,610 --> 00:06:00,209 Stephen Koukoulas: say that matters. What Michelle Bullock will actually put in 114 00:06:00,209 --> 00:06:03,420 Stephen Koukoulas: her quarterly statement of monetary policy. And of course she's 115 00:06:03,420 --> 00:06:05,190 Stephen Koukoulas: going to be up in front of the media packet. 116 00:06:05,190 --> 00:06:10,080 Stephen Koukoulas: I think it's 3: 30 tomorrow afternoon, getting grilled on her decisions, 117 00:06:10,080 --> 00:06:12,539 Stephen Koukoulas: her outlook, and perhaps fleshing out some of the issues 118 00:06:12,540 --> 00:06:15,000 Stephen Koukoulas: that are in there in this statement. It's what she 119 00:06:15,000 --> 00:06:18,568 Stephen Koukoulas: says. Is she still going to not rule anything in 120 00:06:18,570 --> 00:06:20,940 Stephen Koukoulas: or out when it comes to interest rates? Which is what she said 121 00:06:20,940 --> 00:06:23,160 Stephen Koukoulas: last time. The next move could be up or could 122 00:06:23,160 --> 00:06:26,070 Stephen Koukoulas: be down. And don't forget, the RBA is made up of 123 00:06:26,070 --> 00:06:28,980 Stephen Koukoulas: mere mortals. Now they're very smart economists, so they've got 124 00:06:28,980 --> 00:06:32,670 Stephen Koukoulas: that advantage over most of us, but they will be 125 00:06:32,670 --> 00:06:34,438 Stephen Koukoulas: reacting to the data as it comes out. 126 00:06:35,459 --> 00:06:38,160 Sean Aylmer: Yeah. Stephen, thank you. I hate to say this, but 127 00:06:38,160 --> 00:06:41,010 Sean Aylmer: we have one of your competitors on the show on 128 00:06:41,010 --> 00:06:43,529 Sean Aylmer: Wednesday morning. And the reason I mention it to you, 129 00:06:43,529 --> 00:06:46,888 Sean Aylmer: it's Lucy Ellis, who is the Westpac chief economist. And 130 00:06:46,889 --> 00:06:49,678 Sean Aylmer: Lucy, of course was at the Reserve Bank until very 131 00:06:49,678 --> 00:06:52,559 Sean Aylmer: recently, the last couple of months. I am interested in 132 00:06:52,559 --> 00:06:55,200 Sean Aylmer: hearing what she has to say about what Michelle Bullock 133 00:06:55,200 --> 00:06:57,270 Sean Aylmer: is saying because she would know her very well. 134 00:06:58,080 --> 00:07:02,580 Stephen Koukoulas: Indeed. And look, I think Australia's lucky and blessed that 135 00:07:02,790 --> 00:07:05,969 Stephen Koukoulas: it's got fabulous market- based economists, ones that publish their 136 00:07:05,969 --> 00:07:08,339 Stephen Koukoulas: views every day of the week. And I'm lucky to 137 00:07:08,339 --> 00:07:11,639 Stephen Koukoulas: be on most of their big mailing lists. And oh, Lucy's, oh, she's 138 00:07:11,639 --> 00:07:15,090 Stephen Koukoulas: been around the traps a long time. Smart, knowledgeable. And 139 00:07:15,090 --> 00:07:18,180 Stephen Koukoulas: her transition from the Central Bank to a big commercial 140 00:07:18,180 --> 00:07:20,820 Stephen Koukoulas: bank, Westpac, and filling in Bill Evans' shoes, which are 141 00:07:20,820 --> 00:07:22,110 Stephen Koukoulas: pretty big shoes to fill in. She's done it... 142 00:07:22,110 --> 00:07:22,710 Sean Aylmer: They're big shoes. 143 00:07:22,740 --> 00:07:26,759 Stephen Koukoulas: Brilliantly. And she and her team at Westpac, again with 144 00:07:26,759 --> 00:07:30,720 Stephen Koukoulas: CBA, the ANZ people, they produce some really high quality 145 00:07:30,720 --> 00:07:34,980 Stephen Koukoulas: research. And again, goodness me, it's not for me to 146 00:07:34,980 --> 00:07:37,020 Stephen Koukoulas: throw stones. They get some calls right and wrong too. 147 00:07:37,050 --> 00:07:39,809 Stephen Koukoulas: That's not the issue. It's the depth of the analysis 148 00:07:39,809 --> 00:07:42,450 Stephen Koukoulas: on where we are today that's going to be really 149 00:07:42,450 --> 00:07:46,140 Stephen Koukoulas: important. I'll be fascinated to, well, tune into your podcast 150 00:07:46,770 --> 00:07:47,489 Stephen Koukoulas: later this week. 151 00:07:47,940 --> 00:07:49,470 Sean Aylmer: Fantastic. Steven, have a great week. 152 00:07:49,830 --> 00:07:50,310 Stephen Koukoulas: Thank you, Sean. 153 00:07:50,640 --> 00:07:52,980 Sean Aylmer: That was economist, Stephen Koukoulas, better known as the Kouk. 154 00:07:52,980 --> 00:07:55,500 Sean Aylmer: You can find him at thekouk. com and follow him 155 00:07:55,500 --> 00:07:58,950 Sean Aylmer: on X, using the handle TheKouk. I'm Sean Aylmer, and this is Fear 156 00:07:58,950 --> 00:08:00,000 Sean Aylmer: and Greed, The Week Ahead.