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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 are joined

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Speaker 1: by economists Stephen Coacools to take a look at the

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Speaker 1: week ahead. You'll find him at the kook dot com.

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Speaker 1: That's thg kouk dot com and on ex using the

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Speaker 1: handle the kuk. Stephen, Good morning.

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Speaker 2: Good morning, Michael.

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Speaker 1: Big week coming up this week, and an even bigger

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Speaker 1: week arguably the following week, right because next week we've

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Speaker 1: got the Reserve Bank Board meeting and they're going to

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Speaker 1: be watching so closely to see what happened at this

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Speaker 1: week when the December quarterly inflation figures come out, which

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Speaker 1: are all important and are going to really decide what happens.

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Speaker 1: What are you expecting to see?

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Speaker 2: Yeah, look, it's the context of this is so important.

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Speaker 2: If we think back just three months ago, the market

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Speaker 2: was pricing in Reserve Bank inter straight out came the

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Speaker 2: September quarter inflation number one point three percent headline, one

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Speaker 2: percent trimmed mean or the underlying measure. Oh boy, people

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Speaker 2: just sort of thought, what on earth is going on

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Speaker 2: with that number there's a little bit of trepidation. Is

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Speaker 2: it a one off, is it a quirk whatever. But

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Speaker 2: then in the subsequent period we've had better news on

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Speaker 2: household spending. House prices are still going up. Global economic

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Speaker 2: conditions are sort of hinting that inflation pressures aren't quite

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Speaker 2: as benign as perhaps they might have been three months ago.

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Speaker 2: So if the December quarter number that comes out on

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Speaker 2: Wednesday shows, particularly the trimmed mean measure, because there is,

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Speaker 2: as we know, a lot of noise in these numbers,

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Speaker 2: but if you look at the underlying price pressures for

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Speaker 2: the goods and services in the economy and they show look,

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Speaker 2: I think the benchmark is about a point eight percent

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Speaker 2: increase in the quarterly trimmed mean. That's the one which

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Speaker 2: is really murky. Above that, Look, dare I say it,

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Speaker 2: we could well get a rate high from the RBA

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Speaker 2: next week. If it's er point seven, we might just

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Speaker 2: sort of say, well, let's just wait and see. It

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Speaker 2: doesn't kill a rate speculation by any means, but it

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Speaker 2: might just be that couple of tenths. It doesn't sound much,

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Speaker 2: but a couple of tents can make a huge difference

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Speaker 2: for an RBA. That's tried to forecast an inflation rate

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Speaker 2: in the midpoint of a two to three percent target.

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Speaker 1: Pan. Okay, they'll also be looking at it in the

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Speaker 1: context then, of the jobs figures that came out last week,

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Speaker 1: and that was a surprise increase in the number of

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Speaker 1: jobs created, pushing the unemployment rate lower. What did you

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Speaker 1: make of those figures?

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Speaker 2: They were unambiguously undeniably and every aspect of them were strong, strong,

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Speaker 2: and strong. Now again, context, I love Econmoss. We need context.

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Speaker 2: The previous few months for the labor market had been

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Speaker 2: a bit softly. You know, employment growth had been pretty weak.

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Speaker 2: The prior month was minus thirty thousand jobs, and so

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Speaker 2: everyone was being a bit of a bounce back. But

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Speaker 2: to get plus sixty five thousand in the employment side,

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Speaker 2: the bass bottle of that full time employment, which is

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Speaker 2: always a nice signal on how the economy and labor

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Speaker 2: market are going. And as you touched on, the really

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Speaker 2: important part to me, or the more important part, was

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Speaker 2: the unemployment rate dropping back to four point one percent.

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Speaker 2: You know, we'd been increasing to four point four percent

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Speaker 2: through this September stabilized came down a bit, and then

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Speaker 2: four point one in December is confirming that the unemployment

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Speaker 2: rate is only really about half a percent from being

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Speaker 2: at its lowest level in fifty years. So those numbers

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Speaker 2: were strong. And remember that the RBA, with its mandate

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Speaker 2: of both inflation and the labor market, well it's got

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Speaker 2: one half of the wammy, so it could get a

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Speaker 2: double wammy with the inflation numbers later this week. But

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Speaker 2: that labor market number, while in itself you wouldn't say

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Speaker 2: a slam dunk raid hike on the cards, it certainly

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Speaker 2: puts some pressure opens the door for the RBA to

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Speaker 2: have a rate height consideration on the table.

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Speaker 1: Okay, the main game then is inflation then this week

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Speaker 1: in terms of what we are seeing, and if you

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Speaker 1: can just then break that down just a little bit

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Speaker 1: more for me in terms of the main components of

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Speaker 1: where we could see a spike, because every time afterwards

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Speaker 1: we're looking at it and breaking it down into the

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Speaker 1: different pieces. Where's the biggest risk for us here?

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Speaker 2: Yeah? The interesting one about this and we know house prices,

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Speaker 2: and strictly speaking, house prices are not in the inflation

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Speaker 2: rate the consumer price index, but housing construction costs are,

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Speaker 2: dwelling rent is so these household services, so council rates

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Speaker 2: and these sorts of things are in the index as well.

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Speaker 2: And we know that the electricity rebates that have been

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Speaker 2: very much flavor of the day there I say it

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Speaker 2: last year during the election campaign are coming to an

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Speaker 2: end and they basically of all ended on the thirty

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Speaker 2: first December last year, so the December quarter, so we

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Speaker 2: will probably be getting that household housing construction side of

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Speaker 2: the economy showing where the price pressures still are and

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Speaker 2: if they're even a little more elevated again, it doesn't

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Speaker 2: take much to push that bottom line inflation rate up

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Speaker 2: by point one point two percentage points, So from something

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Speaker 2: that might be we're okay to something that, oh, this

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Speaker 2: is a bit uncomfortable. Things like a lot of petrol

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Speaker 2: prices are pretty much under control, and some of the

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Speaker 2: other goods prices are falling. We know that a lot

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Speaker 2: of food prices are a little bit lower now some

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Speaker 2: of the global commodity indices outside the precious middles which

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Speaker 2: actually feed into jewelry prices, So jewelry gold itself isn't

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Speaker 2: in the CPI, but jewelry is, and we've seen this

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Speaker 2: unbelievable run in gold and now silver prices impacting on

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Speaker 2: jewelry costs. So, oh, it's going on these ones where

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Speaker 2: we're going to be looking through the entrials of this

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Speaker 2: and to see the other important part for me will

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Speaker 2: be are there more we call administered price increases or

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Speaker 2: decreases coming through? I mentioned electricity, but also what's also

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Speaker 2: happening to sort of government charges on xises and these

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Speaker 2: sorts of things will be pretty important to sort of

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Speaker 2: take a step back and try to digest what's actually

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Speaker 2: happening to inflation.

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Speaker 1: Okay, so trimmed mean, if we see zero point seven percent,

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Speaker 1: we might be able to avoid a rate hike zero

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Speaker 1: point eight percent, It suddenly becomes more likely that we

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Speaker 1: will if it's around that level. Is there a chance

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Speaker 1: that we could see the RBA choosing to wait, just

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Speaker 1: to wait and see And if they do, do they

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Speaker 1: have to wait until the next quarterly figures come out?

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Speaker 1: Or are the monthly inflation figures that we get now

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Speaker 1: strong enough to give them that guidance that they're looking for.

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Speaker 2: Yeah, I think if they do pause, if they decide

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Speaker 2: next week, look, we're on hold. But of course I

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Speaker 2: think the retoric surrounding Michelle Bullock's the IBA governor's press

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Speaker 2: comfort will be pretty hawkish almost regardless of what that

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Speaker 2: inflation number turns out to be if she doesn't highep.

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Speaker 2: There's still an element of uncertainty about the monthly trimmed

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Speaker 2: mean measurement of inflation because of course the more highly

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Speaker 2: volatile data monthly as opposed to quarterly, the volatility of

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Speaker 2: the items can change dramatically. So there's a little example

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Speaker 2: and something that I hope listeners can sort of relate

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Speaker 2: to because it helps me explain it to Petrol might

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Speaker 2: be a dollar eighty a leader in January, a dollar

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Speaker 2: sixty in February, dollar eighty in March, but compared to

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Speaker 2: the so you've got this huge volatility in the trim

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Speaker 2: and that'd be trimmed out of the inflation rate, whereas

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Speaker 2: the quarterly number might be unchanged from the December quarter,

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Speaker 2: even though you've got all this intra quarter volatility going through.

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Speaker 2: So look, that's my long winded way of saying monthly

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Speaker 2: inflation number is really important. That they've got a lot

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Speaker 2: of noise in them, and if they show, you know,

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Speaker 2: a really big move one way, then it could feed

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Speaker 2: into the RBA deliberations. But ideally until we just get

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Speaker 2: another few readings of this monthly number, we can interpretate,

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Speaker 2: interpret it's better. Yeah, I think we're still pretty much

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Speaker 2: reliant on the quarterly numbers for the for the RBA

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Speaker 2: monetary policy decision making.

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Speaker 1: All right, so all eyes on the ABS this week

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Speaker 1: on Wednesday, very very big week, Steven, thanks for talking

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Speaker 1: to me this morning.

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Speaker 2: Thank you. Michael.

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Speaker 1: That was economist Stephen Coo Coolest, better known as the Kook.

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Speaker 1: You can find him at the kouk dot com and

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Speaker 1: follow him on excusing the handle of the Kouk. I

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Speaker 1: Michael Thompson and this is Fear and Greed Q and

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Speaker 1: a