1 00:00:05,880 --> 00:00:08,640 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Suan Almam. 2 00:00:08,920 --> 00:00:12,080 Speaker 1: The Reserve Bank's preferred measure for inflation is back in 3 00:00:12,080 --> 00:00:14,200 Speaker 1: the target range for the first time in more than 4 00:00:14,240 --> 00:00:18,760 Speaker 1: three years. Quarterly CPI came in slightly higher than forecast, 5 00:00:18,840 --> 00:00:21,800 Speaker 1: but it probably wasn't high enough to prevent a rate 6 00:00:21,840 --> 00:00:24,319 Speaker 1: cut when the Reserve Bank Board meets later this month. 7 00:00:24,600 --> 00:00:27,800 Speaker 1: Cheryl Murphy is the chief economist at EY, a former 8 00:00:27,840 --> 00:00:31,080 Speaker 1: Reserve banker herself. Welcome back to Fear and Greed, Cherill. 9 00:00:31,360 --> 00:00:33,240 Speaker 2: Thank you, Sean, It's so delight to be here. 10 00:00:33,840 --> 00:00:35,960 Speaker 1: What did you make of yesterday's figures? 11 00:00:36,640 --> 00:00:39,279 Speaker 2: Look, they're pretty good, aren't they When we think about it. 12 00:00:39,320 --> 00:00:42,200 Speaker 2: We've got annual inflation back down to two point four percent, 13 00:00:42,720 --> 00:00:45,920 Speaker 2: and just two years ago it was at seven percent, 14 00:00:46,440 --> 00:00:49,680 Speaker 2: so that's pretty phenomenal. I was actually at the Prime 15 00:00:49,680 --> 00:00:55,520 Speaker 2: Minister's press club address yesterday and noticed that the not 16 00:00:55,560 --> 00:00:58,800 Speaker 2: one question about inflation from all those journalists in the room, 17 00:00:58,880 --> 00:00:59,600 Speaker 2: which I think. 18 00:00:59,480 --> 00:01:02,640 Speaker 1: In itself was that after the release of this it was. 19 00:01:03,400 --> 00:01:06,039 Speaker 2: One hour after the release, so very very fresh news 20 00:01:06,200 --> 00:01:08,240 Speaker 2: and not brought up at all. I think that there's 21 00:01:08,240 --> 00:01:08,800 Speaker 2: a lot. 22 00:01:09,120 --> 00:01:12,120 Speaker 1: It says the hell of a lot, doesn't it. It's 23 00:01:12,120 --> 00:01:15,039 Speaker 1: funny the I mean, we're digressing already here, but the 24 00:01:15,120 --> 00:01:18,480 Speaker 1: economy hasn't really been front and center in this campaign. 25 00:01:18,520 --> 00:01:22,040 Speaker 1: Cost of living has definitely and you know, around the edges, 26 00:01:22,080 --> 00:01:24,360 Speaker 1: but we haven't been talking economic growth. We haven't been 27 00:01:24,360 --> 00:01:27,479 Speaker 1: talking inflation, we haven't really been talking unemployment. 28 00:01:27,959 --> 00:01:31,399 Speaker 2: No ano that we've been talking about physical discipline unfortunately either. 29 00:01:31,880 --> 00:01:37,960 Speaker 2: So you're right, I think other matches have dominated. I mean, 30 00:01:38,000 --> 00:01:40,400 Speaker 2: you might argue that we've been talking about tariffs a 31 00:01:40,400 --> 00:01:43,880 Speaker 2: lot and that is the economy and the potential risks 32 00:01:43,920 --> 00:01:47,920 Speaker 2: from that. But I'd say that the economy is actually 33 00:01:48,000 --> 00:01:51,040 Speaker 2: running reasonably well at the moment. You know, you've got 34 00:01:51,080 --> 00:01:54,840 Speaker 2: unemployment down just above four percent, you've got the inflation 35 00:01:54,920 --> 00:01:57,640 Speaker 2: rate down as well. So that's I guess left room 36 00:01:57,680 --> 00:02:00,560 Speaker 2: for the promenis to be grilled on the many topics 37 00:02:00,560 --> 00:02:01,560 Speaker 2: that he can be grilled on. 38 00:02:01,960 --> 00:02:05,960 Speaker 1: Perhaps, So back to the figures yesterday. So what were they? 39 00:02:06,000 --> 00:02:09,000 Speaker 1: Why we're worried about the underlying inflation figure so much? 40 00:02:09,680 --> 00:02:11,480 Speaker 1: You kind of wasn't me for interest rates? 41 00:02:11,919 --> 00:02:14,840 Speaker 2: So the headline number, as you say, done at two 42 00:02:14,880 --> 00:02:18,480 Speaker 2: point four percent, so nice and safely within the Reserve 43 00:02:18,560 --> 00:02:21,840 Speaker 2: Bank's target band of two to three percent. That's been 44 00:02:21,880 --> 00:02:24,040 Speaker 2: the case for a little while. But the real news, 45 00:02:24,080 --> 00:02:26,960 Speaker 2: I guess, was in that trimmed mean number, which I 46 00:02:27,000 --> 00:02:29,640 Speaker 2: was sitting at two point nine percent. So that's the 47 00:02:29,680 --> 00:02:32,880 Speaker 2: first time that it's been in that two to three 48 00:02:32,919 --> 00:02:36,960 Speaker 2: percent target ban for some time. And that in itself 49 00:02:37,040 --> 00:02:40,720 Speaker 2: is I guess, the best news in these data, because 50 00:02:41,120 --> 00:02:44,840 Speaker 2: when we take out the volatile items, so there's the 51 00:02:44,880 --> 00:02:46,639 Speaker 2: things that right at the sort of top end and 52 00:02:46,680 --> 00:02:49,600 Speaker 2: the low end of the of the price changes, we 53 00:02:49,639 --> 00:02:52,960 Speaker 2: can see that core inflation is running at a much 54 00:02:53,040 --> 00:02:57,440 Speaker 2: more acceptable pace. That, of course was not unexpected the 55 00:02:57,440 --> 00:03:00,000 Speaker 2: market had priced. In fact, the market at priced was 56 00:03:00,080 --> 00:03:02,640 Speaker 2: something a little higher than that, but it was a 57 00:03:02,639 --> 00:03:06,440 Speaker 2: good number, and you know, it was enough to kind 58 00:03:06,480 --> 00:03:10,080 Speaker 2: of lock in I think the reserve banks may rate cut. 59 00:03:10,600 --> 00:03:13,320 Speaker 2: The markets had already expected that before the release, But 60 00:03:13,360 --> 00:03:15,280 Speaker 2: of course the release could have thrown that, of course, 61 00:03:15,520 --> 00:03:16,639 Speaker 2: and it didn't yesterday. 62 00:03:17,280 --> 00:03:20,480 Speaker 1: Should we stop worrying about inflation then? Or were the 63 00:03:20,560 --> 00:03:24,280 Speaker 1: things yesterday that makes you think there are still things 64 00:03:24,320 --> 00:03:25,360 Speaker 1: that they need to get control of. 65 00:03:26,440 --> 00:03:29,800 Speaker 2: Look, when we look a little plater at the quarterly 66 00:03:29,880 --> 00:03:32,480 Speaker 2: profile of the numbers. You can see that both on 67 00:03:32,520 --> 00:03:37,120 Speaker 2: the headline number and the underlying number, that the pace 68 00:03:37,160 --> 00:03:39,600 Speaker 2: of inflation actually did jump up a little bit, so 69 00:03:40,320 --> 00:03:42,520 Speaker 2: even although the annual numbers were down and the quarterly 70 00:03:42,600 --> 00:03:46,280 Speaker 2: numbers weren't quite so good. Now, that's not in itself 71 00:03:46,360 --> 00:03:48,640 Speaker 2: an indication that we're about to sort of see another 72 00:03:49,080 --> 00:03:53,120 Speaker 2: bit of inflation or things take off, but it's not 73 00:03:53,640 --> 00:03:55,920 Speaker 2: ideal in the sense that you'd like to see those 74 00:03:56,200 --> 00:04:00,480 Speaker 2: quarterly numbers either stable or falling and not rising. But 75 00:04:00,600 --> 00:04:03,320 Speaker 2: so that's worth keeping an eye on. As always, there 76 00:04:03,320 --> 00:04:06,560 Speaker 2: are some numbers in there which are not particularly great, 77 00:04:06,640 --> 00:04:09,360 Speaker 2: so health and education, for example, those were still rising 78 00:04:09,440 --> 00:04:14,040 Speaker 2: at probably uncomfortably high numbers. Health up two point nine percent, 79 00:04:14,320 --> 00:04:17,120 Speaker 2: education costs up five point two percent in the year 80 00:04:17,160 --> 00:04:19,680 Speaker 2: to the March quarter. A little bit of seasonality in 81 00:04:19,720 --> 00:04:21,799 Speaker 2: that for education, of course, given it to the start 82 00:04:21,839 --> 00:04:25,800 Speaker 2: of the year, but I think overall good news. A 83 00:04:25,839 --> 00:04:27,479 Speaker 2: couple of things to keep an eye on, and the 84 00:04:27,520 --> 00:04:30,440 Speaker 2: Reserve Bank, of course, will be dissecting these numbers every 85 00:04:30,520 --> 00:04:32,359 Speaker 2: which way it can to make sure that they're not 86 00:04:32,400 --> 00:04:35,520 Speaker 2: missing anything or any trends, but I think overall they'd 87 00:04:35,520 --> 00:04:40,920 Speaker 2: be fairly comfortable, probably Another thing I'd add here is that, 88 00:04:41,680 --> 00:04:43,960 Speaker 2: of course inflation and the cost of living are sort 89 00:04:43,960 --> 00:04:47,600 Speaker 2: of different things. Inflation can come down, but your cost 90 00:04:47,640 --> 00:04:50,120 Speaker 2: of living can still be high. So in other words, 91 00:04:50,160 --> 00:04:53,600 Speaker 2: if you've had a bout of inflation and very serious 92 00:04:53,600 --> 00:04:56,640 Speaker 2: inflation like we've had over the last two to three years, 93 00:04:56,839 --> 00:04:58,919 Speaker 2: you kind of get an elevation in the price level, 94 00:04:59,200 --> 00:05:03,240 Speaker 2: which means that households feel like things are expensive and 95 00:05:03,360 --> 00:05:07,359 Speaker 2: they are certainly compared to say, twenty nineteen before COVID, 96 00:05:07,960 --> 00:05:10,000 Speaker 2: and a law in flesh and rate of course doesn't 97 00:05:10,240 --> 00:05:12,360 Speaker 2: make that better. It just means that they're not rising 98 00:05:12,400 --> 00:05:14,680 Speaker 2: at the same base that they were. So I'd say 99 00:05:14,720 --> 00:05:18,360 Speaker 2: that cost of living issue is still an issue and 100 00:05:18,400 --> 00:05:21,919 Speaker 2: certainly something that the politicians in particular are very focused on, 101 00:05:21,960 --> 00:05:23,440 Speaker 2: which is of course why we've seen a number of 102 00:05:23,480 --> 00:05:27,000 Speaker 2: election policies which have been aimed to try and address that. 103 00:05:27,600 --> 00:05:29,599 Speaker 1: Stay with Michelle, I want to talk about how this 104 00:05:29,640 --> 00:05:34,360 Speaker 1: all plays out in politics, but also broadly in the economy. 105 00:05:34,480 --> 00:05:43,960 Speaker 1: We'll be back in a minute. My guest this morning 106 00:05:44,040 --> 00:05:48,080 Speaker 1: is Ey chief economist Scherrell Murphy. Before the break, you 107 00:05:48,120 --> 00:05:50,040 Speaker 1: were talking effectively about the cost of living, and I 108 00:05:50,120 --> 00:05:54,719 Speaker 1: think I saw some figures yesterday. Prices are up twenty 109 00:05:54,760 --> 00:05:57,360 Speaker 1: percent over the last five years, but wages up fifteen percent. 110 00:05:57,560 --> 00:05:59,520 Speaker 1: It's got to be in a nutshell. That's where you 111 00:05:59,560 --> 00:06:02,640 Speaker 1: see the living crunch and the fact that it's great 112 00:06:02,640 --> 00:06:05,320 Speaker 1: to have inflation lower, but it's not like prices are falling. 113 00:06:05,320 --> 00:06:08,920 Speaker 1: We don't want that. We're still paying elevated prices given 114 00:06:08,960 --> 00:06:12,479 Speaker 1: what's happened in the last few few years. How does 115 00:06:12,520 --> 00:06:14,320 Speaker 1: that play out in the election do you? And I 116 00:06:14,360 --> 00:06:17,200 Speaker 1: mean we're a political so I'm not interested in any 117 00:06:17,680 --> 00:06:21,680 Speaker 1: my view, your view on who should win. But it 118 00:06:21,720 --> 00:06:25,800 Speaker 1: does seem that the government has a bit of a 119 00:06:25,880 --> 00:06:27,480 Speaker 1: leg up on this issue. 120 00:06:27,960 --> 00:06:31,200 Speaker 2: Yeah, certainly. I'd say both parties are very sensitive to 121 00:06:31,240 --> 00:06:35,480 Speaker 2: it though because the number the policies that are you know, 122 00:06:35,800 --> 00:06:39,360 Speaker 2: you almost say that kind of core policies are focused 123 00:06:39,360 --> 00:06:42,520 Speaker 2: on this. So the electricity rebates coming through again in 124 00:06:42,560 --> 00:06:45,320 Speaker 2: the budget, the tax cuts and the budget from the government, 125 00:06:45,360 --> 00:06:48,960 Speaker 2: and then the coalition choosing to lower the exercise on petrol. 126 00:06:49,640 --> 00:06:52,560 Speaker 2: These these are of course aimed front and center at 127 00:06:52,720 --> 00:06:56,080 Speaker 2: cost of living issues. And doesn't matter what polar survey 128 00:06:56,200 --> 00:06:59,720 Speaker 2: you look at two voters, cost of living is the 129 00:06:59,800 --> 00:07:03,680 Speaker 2: numbnumber one problem for them. On average, it's very very high. 130 00:07:04,000 --> 00:07:08,400 Speaker 2: So it has certainly been it has been directing political attention, 131 00:07:09,120 --> 00:07:12,800 Speaker 2: and to some extent that's unfortunate because when we're getting 132 00:07:12,920 --> 00:07:15,480 Speaker 2: kind of sugar hits if you like to try and 133 00:07:15,640 --> 00:07:19,320 Speaker 2: manage this problem and things like the electricity rebate and 134 00:07:19,360 --> 00:07:22,040 Speaker 2: the cut to the fuel ex I really are that 135 00:07:22,080 --> 00:07:25,680 Speaker 2: they're not fixing any long term problem, they're not structurally 136 00:07:25,680 --> 00:07:29,360 Speaker 2: improving the budget deficit. Then we're kind of worse off 137 00:07:29,400 --> 00:07:32,280 Speaker 2: for it in the end, and it also diverts attention 138 00:07:32,480 --> 00:07:36,240 Speaker 2: from or political appetite, I guess, for getting on with 139 00:07:36,280 --> 00:07:39,680 Speaker 2: some of the bigger picture problems and structural reforms that 140 00:07:39,720 --> 00:07:43,320 Speaker 2: we'd like to see. So it's there, it's a problem. 141 00:07:43,600 --> 00:07:46,600 Speaker 2: It's being dealt with in the election, but I think 142 00:07:46,640 --> 00:07:49,360 Speaker 2: in the long term it's you know, it's holding us back. 143 00:07:49,400 --> 00:07:52,120 Speaker 2: It's something that actually kind of almost gets in the way. 144 00:07:52,440 --> 00:07:55,720 Speaker 1: This time next week we'll have a Prime Minister Albanezia 145 00:07:55,760 --> 00:07:59,800 Speaker 1: or Prime Minister done. How important well, how much will 146 00:07:59,800 --> 00:08:02,720 Speaker 1: I have to worry about what's going on in the 147 00:08:02,840 --> 00:08:06,840 Speaker 1: US and the tariff trade war, Given that they've got 148 00:08:06,840 --> 00:08:12,040 Speaker 1: three years really to roll out their agenda and hopefully 149 00:08:12,080 --> 00:08:15,840 Speaker 1: get some fiscal discipline back into the place. The tariffs, 150 00:08:15,960 --> 00:08:17,120 Speaker 1: I mean, how do they play those. 151 00:08:18,720 --> 00:08:23,840 Speaker 2: I think it's one of those difficult issues because a 152 00:08:24,040 --> 00:08:27,160 Speaker 2: it's hard to actually interpret how it falls or flows 153 00:08:27,200 --> 00:08:30,040 Speaker 2: through into the Australian economy, and the Reserve Bank kind 154 00:08:30,080 --> 00:08:35,600 Speaker 2: of a governor put this fairly neatly just recently, we said, well, 155 00:08:35,679 --> 00:08:38,760 Speaker 2: it could cause growth to go down, but you know, 156 00:08:39,040 --> 00:08:41,800 Speaker 2: maybe there'd be some upside exports if we are more 157 00:08:41,840 --> 00:08:44,360 Speaker 2: competitive in some areas, and it could cause inflation to 158 00:08:44,360 --> 00:08:46,320 Speaker 2: go up, but also could cause inflation to go down. 159 00:08:46,800 --> 00:08:50,920 Speaker 2: So it's a really really hard one. I think if 160 00:08:50,960 --> 00:08:53,080 Speaker 2: I was sitting in government at the moment, I'd be 161 00:08:53,160 --> 00:08:57,400 Speaker 2: most concerned about what it may do to domestic investment 162 00:08:57,480 --> 00:09:00,920 Speaker 2: and domestic consumption. And in the sense that the uncertainty, 163 00:09:01,200 --> 00:09:04,280 Speaker 2: the sort of on and off nature of these tariffs 164 00:09:04,320 --> 00:09:07,079 Speaker 2: and the chaos that seems to be coming out of 165 00:09:07,120 --> 00:09:10,400 Speaker 2: the US at the moment is potentially something that will 166 00:09:10,400 --> 00:09:14,000 Speaker 2: cause Australian businesses and to some extent consumers to think 167 00:09:14,040 --> 00:09:18,720 Speaker 2: twice about making big investments or big consumption decisions. So 168 00:09:18,920 --> 00:09:22,240 Speaker 2: that kind of investment pause is something that will be 169 00:09:22,360 --> 00:09:25,640 Speaker 2: meaningful for a GDP, and so again from a political 170 00:09:25,640 --> 00:09:27,600 Speaker 2: point of view, you don't want to see the economy 171 00:09:27,679 --> 00:09:29,320 Speaker 2: kind of stutter it to a halt as we wait 172 00:09:29,360 --> 00:09:32,040 Speaker 2: to see what goes on here, because that will have implications, 173 00:09:32,080 --> 00:09:35,160 Speaker 2: including for employment and of course just the speed at 174 00:09:35,160 --> 00:09:38,079 Speaker 2: which the economy is running and the health of the economy. 175 00:09:39,160 --> 00:09:41,320 Speaker 1: I wanted you to come on to talk about interest rates. 176 00:09:41,360 --> 00:09:45,160 Speaker 1: We've gone everywhere around the world on this wrapping it up. 177 00:09:45,480 --> 00:09:48,000 Speaker 1: So you expect an interest rate cut in three weeks 178 00:09:48,000 --> 00:09:50,319 Speaker 1: from the Reserve Bank meets What about later in the 179 00:09:50,400 --> 00:09:52,600 Speaker 1: years that a one off cut, will there be others? 180 00:09:53,280 --> 00:09:56,360 Speaker 2: I think there'll be others. We've got monetary policy in 181 00:09:56,800 --> 00:09:59,760 Speaker 2: and contractiony mode at the moment that says that it 182 00:09:59,840 --> 00:10:03,920 Speaker 2: is actually causing the economy to probably slow down a 183 00:10:03,920 --> 00:10:07,600 Speaker 2: little bit more relative to a neutral stance. So in 184 00:10:07,600 --> 00:10:10,120 Speaker 2: other words, interest rates have to come down a little 185 00:10:10,200 --> 00:10:13,079 Speaker 2: further to get too neutral, and I think that's more 186 00:10:13,160 --> 00:10:15,839 Speaker 2: than one twenty five basis point cut. So I think 187 00:10:15,880 --> 00:10:17,840 Speaker 2: the Reserve Bank will be wanting to move back to 188 00:10:17,960 --> 00:10:21,880 Speaker 2: neutral with these relatively good inflation numbers and the new 189 00:10:22,040 --> 00:10:27,439 Speaker 2: risk that the economy slows down because of tariff's, geopolitical strife, 190 00:10:27,480 --> 00:10:31,720 Speaker 2: and concerns from business about what's coming. So, in other words, 191 00:10:31,880 --> 00:10:36,600 Speaker 2: the economy has not only lost that inflationary pressure and 192 00:10:36,720 --> 00:10:39,720 Speaker 2: the heat that's been in the economy, but it's also 193 00:10:39,800 --> 00:10:43,319 Speaker 2: looking at some new downside risks. And if I was 194 00:10:43,360 --> 00:10:45,559 Speaker 2: sitting in the Reserve Bank, I think I'd see it's 195 00:10:45,640 --> 00:10:48,679 Speaker 2: quite prudent to now put in just that little bit 196 00:10:48,720 --> 00:10:53,040 Speaker 2: of I guess, insurance that the economy can continue to 197 00:10:53,120 --> 00:10:55,839 Speaker 2: run at a reasonable pace over the next couple of years. 198 00:10:56,320 --> 00:10:58,040 Speaker 1: Surelle, thank you for talking to Fear and Greed. 199 00:10:58,320 --> 00:10:59,200 Speaker 2: My pleasure. Thank you. 200 00:10:59,640 --> 00:11:02,800 Speaker 1: That was Chief Economist Scharrell Murphy. This is the Fear 201 00:11:02,800 --> 00:11:04,960 Speaker 1: and Greed Business Interview. Join us every morning for the 202 00:11:04,960 --> 00:11:07,800 Speaker 1: full episode of Fear and Greed daily business use for 203 00:11:07,840 --> 00:11:11,720 Speaker 1: people make their own decisions. I'm Sean Elmer. Enjoy your day.