1 00:00:08,480 --> 00:00:10,700 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. We're back 2 00:00:10,700 --> 00:00:14,650 Sean Aylmer: this week as always with economist Stephen Koukoulas. You'll find 3 00:00:14,650 --> 00:00:19,430 Sean Aylmer: him at thekouk. com and on Twitter using the handle TheKouk, T- H- E- K- O- U- 4 00:00:19,500 --> 00:00:21,310 Sean Aylmer: K. Stephen, happy Monday. 5 00:00:21,540 --> 00:00:22,030 Stephen Koukoulas: Happy Monday, Sean. 6 00:00:22,870 --> 00:00:25,360 Sean Aylmer: Now, my brother messaged me last week. He's been living 7 00:00:25,360 --> 00:00:27,500 Sean Aylmer: overseas for a long time and he came back and 8 00:00:27,620 --> 00:00:30,610 Sean Aylmer: he said, " I'm loving The Kouk on Fear and Greed. 9 00:00:30,910 --> 00:00:34,890 Sean Aylmer: Does he suit his name?" and the funny thing is, Stephen- 10 00:00:34,890 --> 00:00:34,891 Stephen Koukoulas: Yeah. 11 00:00:34,891 --> 00:00:38,540 Sean Aylmer: ... I wouldn't say you're a kouk, but you are left of center. 12 00:00:39,680 --> 00:00:41,840 Stephen Koukoulas: I am who I am, but I'm... One thing I've learned 13 00:00:41,840 --> 00:00:45,610 Stephen Koukoulas: in economics, and remembering that it was, gosh, when did 14 00:00:45,790 --> 00:00:48,040 Stephen Koukoulas: we first meet, Sean? 25- odd years ago if I 15 00:00:48,040 --> 00:00:48,760 Stephen Koukoulas: remember correctly? 16 00:00:48,830 --> 00:00:49,809 Sean Aylmer: Something like that, yeah. 17 00:00:50,280 --> 00:00:54,650 Stephen Koukoulas: It's frustrating to hear a very plain vanilla discussion of 18 00:00:54,650 --> 00:00:56,160 Stephen Koukoulas: economics, because it shouldn't be. 19 00:00:56,180 --> 00:00:56,650 Sean Aylmer: Oh, totally. 20 00:00:57,780 --> 00:00:59,680 Stephen Koukoulas: If people say, " Well, rates could go up, but they 21 00:00:59,680 --> 00:01:02,860 Stephen Koukoulas: could go down. It's possible that they should do more 22 00:01:02,860 --> 00:01:05,459 Stephen Koukoulas: on the budget reform or not," no, we need to 23 00:01:05,459 --> 00:01:08,690 Stephen Koukoulas: have definitive debate, if you like, and that's what I've 24 00:01:08,930 --> 00:01:11,280 Stephen Koukoulas: tried to pride myself on, on calling it as you 25 00:01:11,280 --> 00:01:13,891 Stephen Koukoulas: see it without fear or favor, without fear and greed even. 26 00:01:13,890 --> 00:01:17,289 Sean Aylmer: Without fear or greed. Well, I told my brother, I said, " He's a 27 00:01:17,290 --> 00:01:17,869 Sean Aylmer: great guy- 28 00:01:18,000 --> 00:01:18,002 Stephen Koukoulas: (inaudible) . 29 00:01:18,002 --> 00:01:21,220 Sean Aylmer: ... and you should listen to what he's got to say." Now, that's a good 30 00:01:21,220 --> 00:01:23,810 Sean Aylmer: place to start. The big eco data last week was 31 00:01:23,810 --> 00:01:24,870 Sean Aylmer: the labor force stats. 32 00:01:25,440 --> 00:01:27,869 Stephen Koukoulas: And they were good. Of course, we were always going to 33 00:01:28,569 --> 00:01:31,780 Stephen Koukoulas: run the risk of getting a very quirky January result 34 00:01:31,840 --> 00:01:35,410 Stephen Koukoulas: because again, that was the survey done in the early 35 00:01:35,410 --> 00:01:37,360 Stephen Koukoulas: part of the month of January and we'd had the, 36 00:01:37,760 --> 00:01:40,600 Stephen Koukoulas: well, self- imposed lockdowns I suppose from Omicron starting to 37 00:01:40,600 --> 00:01:44,780 Stephen Koukoulas: impact the data, and we saw this strange set of 38 00:01:44,780 --> 00:01:48,300 Stephen Koukoulas: numbers last week. Employment was up about 13,000, so that 39 00:01:48,300 --> 00:01:52,150 Stephen Koukoulas: was okay. The unemployment rate stayed at 4. 2%, which was 40 00:01:52,150 --> 00:01:55,390 Stephen Koukoulas: pretty good. The unemployment rate just ticked up a tiny 41 00:01:55,390 --> 00:01:59,190 Stephen Koukoulas: bit to 6. 7%. Again, pretty good. And the big thing 42 00:01:59,190 --> 00:02:02,530 Stephen Koukoulas: where the Omicron issue showed up was this 8. 8% 43 00:02:03,710 --> 00:02:07,380 Stephen Koukoulas: monthly fall in hours worked, which means that people kept 44 00:02:07,380 --> 00:02:11,280 Stephen Koukoulas: their jobs, but because of their illness or the businesses 45 00:02:11,280 --> 00:02:13,359 Stephen Koukoulas: that were working and closing down because they couldn't get 46 00:02:13,360 --> 00:02:16,930 Stephen Koukoulas: staff, or people looking after family members who had Omicron 47 00:02:17,030 --> 00:02:20,190 Stephen Koukoulas: or confined to home, they didn't work, so at the 48 00:02:20,190 --> 00:02:22,850 Stephen Koukoulas: end of the day a quirky number for sure, but 49 00:02:22,850 --> 00:02:24,730 Stephen Koukoulas: one that could have been a whole lot worse, and 50 00:02:24,780 --> 00:02:25,880 Stephen Koukoulas: it was actually quite solid. 51 00:02:26,320 --> 00:02:28,930 Sean Aylmer: And the RBA minutes last week didn't tell us anything too 52 00:02:28,930 --> 00:02:31,869 Sean Aylmer: new. I mean, Phil Lowe, the Governor, had spoken the week before, I suppose? 53 00:02:32,419 --> 00:02:34,769 Stephen Koukoulas: Yes. The RBA has been on a bit of a 54 00:02:34,770 --> 00:02:37,400 Stephen Koukoulas: publicity stint as the year kicked off a few weeks 55 00:02:37,400 --> 00:02:39,720 Stephen Koukoulas: ago, so the minutes that we saw last week really 56 00:02:39,720 --> 00:02:43,090 Stephen Koukoulas: just confirmed, and I suppose their assessment that they're not 57 00:02:43,090 --> 00:02:47,730 Stephen Koukoulas: yet convinced that the inflation pickup will be sustained for 58 00:02:47,730 --> 00:02:49,840 Stephen Koukoulas: a particularly long period of time or get out of 59 00:02:49,840 --> 00:02:53,950 Stephen Koukoulas: hand, so they're content to sit tight for now, watch 60 00:02:53,950 --> 00:02:57,360 Stephen Koukoulas: the next couple of monthly employment numbers, the next couple 61 00:02:57,360 --> 00:03:01,540 Stephen Koukoulas: of quarterly wages and CPI numbers, before they make their 62 00:03:01,740 --> 00:03:02,410 Stephen Koukoulas: decision on when and how much to hike. 63 00:03:03,940 --> 00:03:06,010 Sean Aylmer: Okay, now the big question for the Reserve Bank and 64 00:03:06,010 --> 00:03:10,139 Sean Aylmer: for many economists is what's happening in the wages market? 65 00:03:10,139 --> 00:03:13,700 Sean Aylmer: We heard that the unemployment rate's at 4.2%, which is pretty 66 00:03:13,700 --> 00:03:16,010 Sean Aylmer: strong. I think SEEK had some data out last week 67 00:03:16,010 --> 00:03:19,519 Sean Aylmer: too, saying that January was the strongest month for people 68 00:03:19,520 --> 00:03:23,130 Sean Aylmer: advertising for jobs. Wage price index, average weekly earnings, you're 69 00:03:23,130 --> 00:03:24,190 Sean Aylmer: going to have to give us a bit of a 70 00:03:24,190 --> 00:03:25,679 Sean Aylmer: 101 on this one, Stephen. 71 00:03:25,700 --> 00:03:25,720 Stephen Koukoulas: Yeah. 72 00:03:26,370 --> 00:03:28,341 Sean Aylmer: What do they mean and what are they going to show? 73 00:03:28,341 --> 00:03:34,040 Stephen Koukoulas: Okay, there're two important wage indicators later this week. The wage price index 74 00:03:34,980 --> 00:03:38,850 Stephen Koukoulas: is the Bureau of Statistics working out the change in 75 00:03:39,190 --> 00:03:44,280 Stephen Koukoulas: labor costs for the same job. So if you're a... 76 00:03:44,280 --> 00:03:47,880 Stephen Koukoulas: got a particular standard of employment, and wages go up 77 00:03:47,880 --> 00:03:50,920 Stephen Koukoulas: because of demand for labor increasing, that is captured in 78 00:03:50,920 --> 00:03:54,740 Stephen Koukoulas: the wage priced index, so if you get a pay rise, 79 00:03:54,800 --> 00:03:57,610 Stephen Koukoulas: say, because you've got a promotion, you've got better skills, 80 00:03:57,790 --> 00:04:01,380 Stephen Koukoulas: you've shifted from company A to company B, that will 81 00:04:01,380 --> 00:04:03,910 Stephen Koukoulas: not be captured in the wage price index, but it 82 00:04:03,910 --> 00:04:06,130 Stephen Koukoulas: will be captured in the other data that comes out 83 00:04:06,410 --> 00:04:09,330 Stephen Koukoulas: later this week, and that's the average weekly earnings, which is 84 00:04:09,330 --> 00:04:13,610 Stephen Koukoulas: simply a dollars and cents measure of how much the 85 00:04:13,610 --> 00:04:15,940 Stephen Koukoulas: average worker gets in their pay packet, so if it's... 86 00:04:16,270 --> 00:04:20,040 Stephen Koukoulas: Last measurement we had was about $1, 750 a week, that's 87 00:04:20,450 --> 00:04:23,650 Stephen Koukoulas: the average full time equivalent pay, so if people get 88 00:04:23,650 --> 00:04:27,510 Stephen Koukoulas: promoted, get bonuses, that captures the dollars and cents in that 89 00:04:27,510 --> 00:04:30,820 Stephen Koukoulas: pay measure, whereas the wage price index is in theory 90 00:04:30,820 --> 00:04:34,370 Stephen Koukoulas: a more pure measure of firms' labor costs. 91 00:04:34,680 --> 00:04:36,779 Sean Aylmer: So what will they say this week, do you think? 92 00:04:37,010 --> 00:04:39,930 Stephen Koukoulas: Right, well all that said, I think both of them 93 00:04:39,930 --> 00:04:42,909 Stephen Koukoulas: are going to be showing an increase in wages momentum. The 94 00:04:42,910 --> 00:04:47,359 Stephen Koukoulas: market is looking for a 0. 8% quarterly increase in the wage 95 00:04:47,360 --> 00:04:49,430 Stephen Koukoulas: price index, which would be one of the highest that 96 00:04:49,450 --> 00:04:53,520 Stephen Koukoulas: we've seen in about seven years. We've been used to 97 00:04:53,520 --> 00:04:57,700 Stephen Koukoulas: wages growing at about two, 2. 1, 2. 2% per 98 00:04:57,700 --> 00:05:02,089 Stephen Koukoulas: annum, so obviously that's quarterly measures of about 0.5 or 0. 6, so 99 00:05:02,089 --> 00:05:04,210 Stephen Koukoulas: if we get a 0. 8, in a sense it doesn't 100 00:05:04,210 --> 00:05:08,640 Stephen Koukoulas: sound like a terribly large acceleration in wages growth or 101 00:05:08,640 --> 00:05:11,370 Stephen Koukoulas: in labor cost growth, but if you multiply 0. 8 102 00:05:11,370 --> 00:05:13,429 Stephen Koukoulas: times four to get an annual figure, you're up around 103 00:05:13,430 --> 00:05:15,480 Stephen Koukoulas: about three and a quarter percent annual increase, so if 104 00:05:15,480 --> 00:05:17,720 Stephen Koukoulas: we get a figure like that, it will confirm what 105 00:05:17,720 --> 00:05:19,250 Stephen Koukoulas: a lot of the market's thinking, and that is that 106 00:05:19,250 --> 00:05:22,670 Stephen Koukoulas: we are seeing a change in labor cost momentum. On 107 00:05:22,670 --> 00:05:25,560 Stephen Koukoulas: the wages side, the average weekly earnings, we're probably going 108 00:05:25,560 --> 00:05:28,210 Stephen Koukoulas: to get a bigger increase in the amount of money 109 00:05:28,210 --> 00:05:31,570 Stephen Koukoulas: that people are earning, because we do know anecdotally that 110 00:05:31,570 --> 00:05:35,080 Stephen Koukoulas: people are getting higher pay by jumping from firm to 111 00:05:35,080 --> 00:05:38,320 Stephen Koukoulas: firm, so that poaching that's going on because of the 112 00:05:38,320 --> 00:05:42,349 Stephen Koukoulas: skill shortage is seeing people moving away from their old employer, 113 00:05:42,430 --> 00:05:44,550 Stephen Koukoulas: if you like, to a new one who's paying a 114 00:05:44,550 --> 00:05:47,850 Stephen Koukoulas: bit more, so I'd expect to see the average weekly 115 00:05:47,910 --> 00:05:51,690 Stephen Koukoulas: earnings number increase by more than the wage price index number. 116 00:05:53,300 --> 00:05:56,900 Sean Aylmer: Okay. And of course these are the figures that feed through to inflation, because wages 117 00:05:56,900 --> 00:05:58,729 Sean Aylmer: is a big part of price rises. 118 00:05:59,089 --> 00:06:03,370 Stephen Koukoulas: Correct, and you've absolutely nailed the crux of a really hot discussion that's 119 00:06:03,370 --> 00:06:06,809 Stephen Koukoulas: going on right now, including from the RBA, and they're 120 00:06:06,810 --> 00:06:09,609 Stephen Koukoulas: saying that one of the ways that wages is going to show up 121 00:06:09,830 --> 00:06:12,730 Stephen Koukoulas: in inflation is if firms are paying more for their 122 00:06:12,800 --> 00:06:16,220 Stephen Koukoulas: labor costs as they're hunting around for skills and talent to 123 00:06:16,220 --> 00:06:19,820 Stephen Koukoulas: fulfill their expansion plans, then one way that they recoup 124 00:06:19,820 --> 00:06:21,960 Stephen Koukoulas: those labor costs is to put up their selling prices, 125 00:06:22,230 --> 00:06:26,839 Stephen Koukoulas: and putting up selling prices, voilà, is higher inflation. That's 126 00:06:26,839 --> 00:06:29,990 Stephen Koukoulas: the sort of dynamics that the RBA and the market's 127 00:06:29,990 --> 00:06:32,980 Stephen Koukoulas: looking for. We know that the December quarter CPI showed 128 00:06:32,980 --> 00:06:36,430 Stephen Koukoulas: this pickup in inflation. It'll be interesting to see whether 129 00:06:36,450 --> 00:06:38,330 Stephen Koukoulas: the wages data validate that increase. 130 00:06:39,230 --> 00:06:40,250 Sean Aylmer: Stephen, have a great week. 131 00:06:40,640 --> 00:06:41,060 Stephen Koukoulas: Thank you, Sean. 132 00:06:41,510 --> 00:06:44,270 Sean Aylmer: That was economist Stephen Koukoulas, better known as TheKouk. You 133 00:06:44,270 --> 00:06:46,880 Sean Aylmer: can find him at thekouk. com and follow him on 134 00:06:46,880 --> 00:06:50,140 Sean Aylmer: Twitter using the handle TheKouk. I'm Sean Aylmer, and this 135 00:06:50,140 --> 00:06:51,290 Sean Aylmer: is Fear and Greed - The Week Ahead.