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Speaker 1: Welcome to Ask Fear and Greed, where we take your

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Speaker 1: questions and do our very best to answer them. I'm

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Speaker 1: Michael Thompson, and good afternoon, Sean Aylmer. Hi, Michael, Sean.

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Speaker 1: After the success of our first episode of Ask Fear

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Speaker 1: and Greed, where we answered Nina's I say we it

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Speaker 1: was you answered Nina's question about the income tax reductions

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Speaker 1: and the impact on inflation, we are back to do

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Speaker 1: it again with a fantastic question from John. Are you

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Speaker 1: ready for this, Sean, I'm ready for it all right. Look,

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Speaker 1: John wants to know. He has a question for us

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Speaker 1: on CPI. He says, how much of it is driven

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Speaker 1: by services versus goods? He says, I see wages still

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Speaker 1: going up and up and business owners have no choice

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Speaker 1: but to pass these costs on. How does that impact

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Speaker 1: CPI figures over to you, I've done my bit.

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Speaker 2: Ah, great question. So there's no exact answer to it,

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Speaker 2: because sometimes goods inflation affects CPI more than services inflation

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Speaker 2: depends what's going up. Maybe we need a couple of definitions.

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Speaker 2: Up front goods inflation basically, it's the stuff that you

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Speaker 2: buy and bring home TV, new clothes, supermarket food, that

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Speaker 2: sort of stuff. Services inflation is the stuff you buy

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Speaker 2: but you don't bring home. Rent that's about thirteen percent

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Speaker 2: of services inflation in that CPI basket, insurance and financial services.

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Speaker 2: Holiday travel medicals in their educations, in their restaurant meals

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Speaker 2: is another one. So you buy it but you don't

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Speaker 2: bring it home. Well, you probably did because you probably

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Speaker 2: put it into takeaway container. It's not completed. But you

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Speaker 2: get the point. Goods you bring home, services you don't.

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Speaker 2: Was it?

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Speaker 1: Michelle Bullock, the RBA governor, who was asked this question

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Speaker 1: as well, the difference between the two at the press conference,

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Speaker 1: and she said, what was it? If you can drop

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Speaker 1: it on your foot, it's good. I'm like, that's a

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Speaker 1: good way to remember it. Very simple.

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Speaker 2: Yeah. Well, the way I think of it is you

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Speaker 2: bring it home, yep, if you don't. Services In the

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Speaker 2: short term, when COVID finished and people had all this

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Speaker 2: money in their bank accounts, they went and spent it

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Speaker 2: on stuff like clothes and dishwashers. Well, I don't know,

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Speaker 2: dish washes, TVs, you know what I mean, white goods,

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Speaker 2: all that sort of stuff. They couldn't travel to begin with,

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Speaker 2: so they spent a lot of it on goods. Goods

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Speaker 2: inflation took off after a year or two years, we

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Speaker 2: ended up having a house in crisis, so that pushed

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Speaker 2: rents higher. People took more holidays, which is actually a service.

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Speaker 2: You can't bring a holiday home, so that's a service.

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Speaker 2: Insurance premiums rose. Now a lot of that was due

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Speaker 2: to climate change and stuff like that. Services inflation took

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Speaker 2: off after goods inflation, but it takes more time to

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Speaker 2: get in services inflation down. Many services are non negotiable,

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Speaker 2: so interest rates rise. You think I haven't got as

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Speaker 2: much money. You can put off buying a new TV,

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Speaker 2: but you can't really put off paying the rent. So

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Speaker 2: it's much harder to get services inflation lower than it

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Speaker 2: is to get goods inflation. And it is fair to

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Speaker 2: say now that goods inflation is under control, but services

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Speaker 2: inflation isn't. Something El's interesting. Services inflation tends to run

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Speaker 2: in line with wages growth, and we've seen higher wages

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Speaker 2: in Australia. As a result, we've seen higher services inflation.

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Speaker 2: This is a global trend, not just in Australian. So

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Speaker 2: that means that you can't actually say how much of

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Speaker 2: the CPI it services how much is good because it

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Speaker 2: just depends on when it's running. At the moment, services

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Speaker 2: inflation is running most Now, Michael, can you give me

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Speaker 2: the second part of the question. I've gone off and

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Speaker 2: I'd be very excited about this, but I can't quite

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Speaker 2: remember what the second part of the question was. It's

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Speaker 2: about wages.

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Speaker 1: Yes, he goes that, I see wages going up and

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Speaker 1: up and up, and business owners have no choice but

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Speaker 1: to pass these costs on. How does that impact CPI figures? Ah.

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Speaker 2: I love the fact that he said I see wages

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Speaker 2: going up and up and up. The fact that he

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Speaker 2: says C is really really important. The Reserve Bank talks

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Speaker 2: about inflation expectations. They are paranoid that inflation expectations will

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Speaker 2: run wild. Why we worried about that. If I go

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Speaker 2: to work and I'm negotiating a wage rise and I

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Speaker 2: think inflation, there's lots of inflation out there that I

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Speaker 2: don't want a three percent rise. I want a five

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Speaker 2: percent rise. If I'm a business running a business and

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Speaker 2: someone's negotiating with me, I know they're going to ask

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Speaker 2: for five percent because inflation's ramp and out there. They're

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Speaker 2: not going to ask for three percent. I also know

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Speaker 2: that I can actually put up the cost of my

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Speaker 2: goods by five percent, not three percent, because people expect

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Speaker 2: inflation to be out there, and it becomes this self

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Speaker 2: fulfilling prophecy where inflation expectations leads to inflation. If you

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Speaker 2: can cut inflation expectations, people won't see that prices are

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Speaker 2: increasing or see that wages increasing. They'll just experience what

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Speaker 2: is actually happening. So that's why that whole inflation expectation

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Speaker 2: thing is so so important. If the Reserve Bank can

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Speaker 2: use interest rates to cut inflation expectations, people won't be

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Speaker 2: asking for five percent, They'll be asking for three percent.

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Speaker 2: Tyler's won't be pushing up the price of goods by

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Speaker 2: five percent, They'll be pushing it up by two or

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Speaker 2: three percent, and that actually helps defeat inflation.

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Speaker 1: Inflation expectation sounds like an eighties kind of progressive rock band,

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Speaker 1: don't you think.

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Speaker 2: I hadn't thought that until this very moment.

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Speaker 1: I think I think you've answered John's I'm biased because

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Speaker 1: I'm here with you and I have learned something. I

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Speaker 1: think you've answered John's question.

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Speaker 2: Well, I hope so, John. I'm very enthusiastic about it.

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Speaker 2: So maybe that's why you think I have answered the question. John,

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Speaker 2: come right back at us if I haven't, but I

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Speaker 2: think I've done an ok.

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Speaker 1: John, Absolutely, Thank you so much John for your question,

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Speaker 1: and remember, if you've got something you'd like to know,

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Speaker 1: then please send it through jump onto, LinkedIn, Instagram, Facebook,

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Speaker 1: any of those platforms, or just had along to Fearangreed

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Speaker 1: dot com dot au and pop your question in there

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Speaker 1: and we will get to it. And Sean, I mean

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Speaker 1: that's two from two now. John. I know we're marking

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Speaker 1: our own homework here, but I'm going to say a plus.

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Speaker 1: Thank you very much, So remember to hit follow on

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Speaker 1: the podcast. I'm Michael Thompson and that was asked Fear

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Speaker 1: and Greed