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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and 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 economist Stephen could Coolis. To look at the week ahead.

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Speaker 1: You'll find Stephen at the kook dot com. That's t

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Speaker 1: g k uk dot com and on X using the

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Speaker 1: handle the kuk Stephen, Good morning.

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Speaker 2: Good morning, Michael. Chaotick week last week and even more

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Speaker 2: chaos coming this week.

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Speaker 3: I love it. What a week ahead of us.

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Speaker 1: Let's start with the week ahead, because really there are

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Speaker 1: so many headlines this week. Reserve Bank Board meets today

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Speaker 1: and tomorrow and tomorrow afternoon at two thirty we will

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Speaker 1: get the interest rate decision. No one is expecting a

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Speaker 1: rate cut tomorrow, right correct?

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Speaker 2: I don't think anybody is, and I don't think we're

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Speaker 2: going to get one for a few obvious reasons. One is,

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Speaker 2: and as the RBA has been saying in its recent

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Speaker 2: public commentary, there are some tentative hints of better economic news.

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Speaker 2: And you and I have spoken about this in recent weeks,

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Speaker 2: that things like the retail sectors a little bit, better

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Speaker 2: building approvals are picking up a little bit. The GDP

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Speaker 2: result that we saw a few weeks ago was a

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Speaker 2: little bit stronger. So they're looking at that and saying, well,

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Speaker 2: hang on, we've got seventy five points of rape cuts

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Speaker 2: already in the system. They're yet to have their full

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Speaker 2: effect on the economy. Let's just take a time out

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Speaker 2: tomorrow afternoon with our announcement of no change in rates,

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Speaker 2: and the governor can explain that at a press conference,

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Speaker 2: and let's wait and see what happens to the economy

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Speaker 2: after that.

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Speaker 1: So, based on the current trajectory, then you would expect

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Speaker 1: then that we might see another rate cut at the

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Speaker 1: following meeting, and maybe one more next year. Maybe. And

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Speaker 1: I know that the thing that strikes me as interesting

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Speaker 1: is that that ten economists can look at the same

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Speaker 1: set of data and come up with ten different predictions.

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Speaker 2: Yes, and I think that's a good way of putting

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Speaker 2: out it. Look, I still think the RBA does have

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Speaker 2: in its mind a need, just a wish, but a

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Speaker 2: need to reduce the interstrate a little bit more, because,

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Speaker 2: as they're articulated, the three point six percent official cash

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Speaker 2: rate is restrictive. So if we were to just look

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Speaker 2: at isolation, ignore the data for a second, and I

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Speaker 2: know that's hard to do. You'd say a three point

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Speaker 2: six percent cash rate is imparting a little more downside

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Speaker 2: impetus to the economy than upside. And we know that

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Speaker 2: the neutral rate is still twenty five or so basis

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Speaker 2: points away, and so if you want to move to

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Speaker 2: a neutral or even just a tiny little bit stimulative policy,

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Speaker 2: you need those one or two rate cuts. But as

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Speaker 2: you alluded to, none tomorrow, maybe one before the end

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Speaker 2: of the year. There's two more meetings after that, in

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Speaker 2: November and December. Then we fast forward to February next

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Speaker 2: year for the next meeting, and of course, what happens

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Speaker 2: to inflation, what happens to the labor force numbers, what

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Speaker 2: happens globally will determine whether we get those one or

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Speaker 2: two cuts or not.

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Speaker 1: I want to focus as well on the rest of

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Speaker 1: the data and things that we're going to be seeing week,

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Speaker 1: but just bringing in something that did come out last week,

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Speaker 1: the monthly inflation data, because this is going to be

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Speaker 1: something that will be discussed at the Reserve Bank Board meeting.

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Speaker 1: We did see headline inflation jumping to three percent for

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Speaker 1: the year ending August. The trimmed mean up at two

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Speaker 1: point six percent, so they're still within the target band.

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Speaker 2: They still are I think us economists, you know, we

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Speaker 2: are excitable sometimes, and we saw these numbers, and because

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Speaker 2: the headline figure in particular was a little above what

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Speaker 2: most people, not even but most people were thinking, oh well, gosh,

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Speaker 2: isn't that a problem? However, however, the Reserve Bank has

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Speaker 2: told us time and time and time again that the

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Speaker 2: monthly CPI is not in their top tier of indicators

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Speaker 2: that they look at. And the reasons are that they're

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Speaker 2: not a comprehensive survey of all prices on a monthly basis.

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Speaker 2: They are on the quarter, but month and month, they

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Speaker 2: don't survey a few bits and bobbers that go into

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Speaker 2: the figure, so misleading. The other thing that with this

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Speaker 2: spike in the headline figured, if we can call a

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Speaker 2: three percent inflationrator spike, was an unlined of what we

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Speaker 2: knew was happening. Some of those electricity subsidies that were

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Speaker 2: paid by the federal government by various state and territory

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Speaker 2: governments are slowly fading out of the system. And when

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Speaker 2: they fade out, that downward pressure that we saw on

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Speaker 2: headline inflation six and twelve months ago is reverting to normal.

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Speaker 2: So you're getting a what was it, a twenty four

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Speaker 2: point six percent increase in electricity prices. That's only because

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Speaker 2: of the substance, not because the economy is overheating. And

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Speaker 2: the other one, which I like to talk about is

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Speaker 2: tobacco taxes, and not that I'm sure how many people

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Speaker 2: paid the tobacco tax, any were given the you know,

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Speaker 2: the market whatever. But nonetheless, the Bureau Statistics count that

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Speaker 2: has headlined inflation, they're up about twelve and a half

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Speaker 2: percent in the year. So if you take those two

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Speaker 2: things out, we're still at two and a half percent,

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Speaker 2: and the Reserve Bank will not look at those two

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Speaker 2: indicators as.

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Speaker 3: Pressuring their official interest rates set.

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Speaker 1: All right, So everyone getting excited last week just needs

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Speaker 1: to just calm down a little bit.

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Speaker 2: Ye, have a cup of team, a bit of a

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Speaker 2: lie down, and wait for the next round of data

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Speaker 2: to come through.

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Speaker 1: Okay, in terms of data coming through this week, there

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Speaker 1: are a couple of key things that we need to

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Speaker 1: look at building approvals because this is going to that question.

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Speaker 3: Of the supply side.

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Speaker 1: Are we getting supply up?

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Speaker 2: The short answer is yes, is it as strong as

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Speaker 2: we would like not yet is the momentum going to

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Speaker 2: continue to go up? I think yes. And this is

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Speaker 2: where we know that the housing affordability, the housing shortage

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Speaker 2: which is still there in both the rental and the

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Speaker 2: owner occupyer market, first home buyomarket as well, we need

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Speaker 2: to build more houses. I don't know a housing economist

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Speaker 2: or anyone who's interested in the topic and interested in

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Speaker 2: intergenerational housing affordability that doesn't think we need to build

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Speaker 2: more houses, particularly that we know that immigration is going

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Speaker 2: to continue to bipartisan issue in Australia will be a

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Speaker 2: round two fifty thousand, three hundred thousand per annum, so

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Speaker 2: it's almost a million people extra in three years time.

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Speaker 2: We need to do a lot more houses to house

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Speaker 2: and let alone to address the shortage it's already there.

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Speaker 2: So long winded way of saying, we have seen a

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Speaker 2: turning point occurring in the number of new building approvals

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Speaker 2: for dwellings month to month. They're incredibly volatile. You just

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Speaker 2: get a couple of high rise apartment developments and you

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Speaker 2: get a big up and a big down, but the

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Speaker 2: trend is higher. Market's looking for a small increase this month.

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Speaker 2: If we get it terrific. It's just another little bit

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Speaker 2: of information suggesting that we are building more dwellings, which

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Speaker 2: is what we desperately need.

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Speaker 1: Meanwhile, there is still this upward pressure on house prices

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Speaker 1: and it's likely we'll see that confirmed in the report

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Speaker 1: from Catality this week.

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Speaker 2: Yes, we know from their high frequency data that house

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Speaker 2: prices in the five cities that they publish the high

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Speaker 2: frequency data on are up about it'll be close to

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Speaker 2: one percent month on month, which is pretty high, and

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Speaker 2: that follows a point seven the previous month and a

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Speaker 2: point six. First of all, the monthly momentum is up.

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Speaker 2: That's feeding into a higher annual increase in house prices.

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Speaker 2: And the cities that have had a bit of a

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Speaker 2: pause at the start of the year, the boom cities Perth, Adelaide,

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Speaker 2: Brisbane are coming back and even poor old Melbourne, which

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Speaker 2: has been hit pretty hard for a whole host of reasons,

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Speaker 2: is coming back as well. So the Captality house price

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Speaker 2: series will show house price continuing to accelerate and pick up.

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Speaker 1: Now we've spoken now over a number of weeks about

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Speaker 1: the increase in just basic optimism. Right, households are spending more.

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Speaker 1: Everyone's feeling a little bit better. We're willing to get

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Speaker 1: out there and actually spend, particularly on some discretionary items,

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Speaker 1: and put a bit more money into the economy. This week,

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Speaker 1: we are going to see the household spending data for August.

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Speaker 1: These good signs that we've seen and discussed, are they

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Speaker 1: going to continue?

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Speaker 3: I think so.

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Speaker 2: Again, this is and I've got to be careful on

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Speaker 2: how adjectives the agective I used to describe it. We

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Speaker 2: are not in a booming economy now, no, But is

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Speaker 2: the economy in better shape and household spending in better

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Speaker 2: shape today than it was a year ago. Unambiguously yes.

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Speaker 2: And what we economists the Reserve Bank are mulling over

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Speaker 2: is the speed of that pickup. So I think we're

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Speaker 2: going to see another reasonable zero point five percent rise

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Speaker 2: in rise in household spending. That's sort of a nice

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Speaker 2: trend increase. It builds on the momentum that we've seen

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Speaker 2: in recent months, and as you said, it's reflecting the

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Speaker 2: fact that real wages are increasing, so wages growths above

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Speaker 2: the inflation rate. Still that we have had a wealth effect.

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Speaker 2: The ASEX well, it's been a bit choppy in the

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Speaker 2: last few weeks, is still well up from where it

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Speaker 2: was the start of the year and a year ago.

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Speaker 2: So there's a bit of a wealth effect there. Do

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Speaker 2: I mentioned high house prices is a wealth effect. People

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Speaker 2: feel better. Most people feel better when house prices are

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Speaker 2: going up. And the interest rate cuts that we've seen,

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Speaker 2: as we mentioned, they're starting to flow into the bank

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Speaker 2: balances and the monthly repayments of people, not just the

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Speaker 2: first twenty five points that's handy, but now I've had

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Speaker 2: three cuts. People are now starting to save real money

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Speaker 2: and they're sort of saying, well, thank goodness for that,

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Speaker 2: I can afford to go out and spend a bit more.

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Speaker 2: So that's a long winded way of saying, yes, I

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Speaker 2: think we are getting more upside by medum in household spending.

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Speaker 2: And remembering that household spending is over half GDP, it matters.

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Speaker 1: You're sounding cautiously optimistic, Steve.

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Speaker 2: Yes, cautiously optimistic, but I've occasionally had that premature optimism

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Speaker 2: that's been dashed, so I'm being more cautious. We probably

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Speaker 2: for me to get that fully fledged optimism coming through,

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Speaker 2: we do need to see a couple more rate cuts

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Speaker 2: from the RBA. We do need to see the global

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Speaker 2: economy consolidate and helping our exports sector. They are two

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Speaker 2: big question marks that are there at the moment. But

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Speaker 2: as we're here now, I'd be more upbeat than downbeat

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Speaker 2: as we start thinking about what the economy is going

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Speaker 2: to be doing in twenty twenty six.

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Speaker 1: Just quickly before we go, last week we had the

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Speaker 1: Reserve Bank Governor Michelle Bulloch and a few of her

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Speaker 1: colleagues at Parliament House in Canberra appearing before a committee.

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Speaker 1: Which is always interesting, isn't it, because you do get,

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Speaker 1: as you mentioned last week, a different line of questioning.

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Speaker 1: It is slightly more political, but you do just get

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Speaker 1: a different insight. What did you make of the appearance

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Speaker 1: by the Reserve Bank team?

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Speaker 3: Yeah, look really good.

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Speaker 2: And as you alluded to, the politicians who asked the

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Speaker 2: questions and I think this time are actually a little

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Speaker 2: bit more non political if they're actually asking genuine questions

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Speaker 2: about the payment system for example, which the Reserve Bank

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Speaker 2: does oversea, and that is how we pay for stuff,

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Speaker 2: the demise of cash, if you like, and the and

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Speaker 2: the transport companies in the olden days used to rock

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Speaker 2: up to the shops and pick up the one hundred

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Speaker 2: dollar bills and ten cent pieces and all the rest

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Speaker 2: of it and distribute them around.

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Speaker 3: They're going out of business because we're.

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Speaker 2: Tapping more and more. So discussions about those things which

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Speaker 2: are really important. About the extra surcharge that we have

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Speaker 2: on credit cards was part of the discussion as well,

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Speaker 2: So they're not necessarily monetary policy.

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Speaker 3: Think so some of us market economis like, oh, I

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Speaker 3: wish you'd.

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Speaker 2: Said a bit more about nayru and inflation, but it

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Speaker 2: was actually about the stuff that makes the economy work,

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Speaker 2: and that's really important part that we often we often

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Speaker 2: overlook what the Reserve Bank does, you know, note printing

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Speaker 2: and the payment system and those sorts and the surcharge fee.

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Speaker 3: They're parts of the economy that are important and.

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Speaker 2: It was refreshing to see the RBA on the front foot,

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Speaker 2: I must say on those issues as well.

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Speaker 1: The only thing that seemed to be a bit of

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Speaker 1: a worry was the comments by the Reserve Bank governor

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Speaker 1: that there isn't a great deal of risk priced into

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Speaker 1: equities at the moment and the potential then as well

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Speaker 1: for global uncertainty still to derail things. That we're heading

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Speaker 1: in a pretty good direction in Australia, but we are

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Speaker 1: still at risk of things well outside of our control.

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Speaker 2: We are, and that's the thing that usually dominates RBA

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Speaker 2: thinking I've been around long enough looking at the RBA

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Speaker 2: and listening to them and talking to them. Of course

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Speaker 2: they focus on the Australian economy. But the thing that

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Speaker 2: they don't want to get wrong when they're forecasting the

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Speaker 2: Australian economy is global conditions, because as we saw, we

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Speaker 2: seen year after year after year, Australia gets caught in

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Speaker 2: the backwash of big global issues, be the pandemic, be

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Speaker 2: it a global financial crisis, be at the Asian economic crisis.

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Speaker 2: Things that are outside our control impact on Australia. So

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Speaker 2: the Reserve Bank does spend a lot of time, rightly

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Speaker 2: so looking at you know, asset bubbles dare I say,

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Speaker 2: in the US and things like that, and think, well, okay,

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Speaker 2: we don't forecast stocks, and we don't know quite where

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Speaker 2: they're going to go, and they could take going up.

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Speaker 2: We're not sure, but I think they had in their

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Speaker 2: top draw, maybe their second draw, contingencies if if there's

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Speaker 2: a bit of mayhem, and it can be a Trump

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Speaker 2: tariff mayhem as well, which I know they've done a

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Speaker 2: lot of work on or geopolitical issues. Again, how do

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Speaker 2: you respond? And this is not a mechanical thing, but

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Speaker 2: we need to be alert to the fact that there

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Speaker 2: could be a geopolitical issue that pops up in an

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Speaker 2: all good way for the global economy. What do we

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Speaker 2: do with monetary policy? So the bank is all over

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Speaker 2: it and that's good to know.

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Speaker 3: Yeah.

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Speaker 1: In the meantime, we will find out the decision on

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Speaker 1: interest rates tomorrow afternoon, which will not be a surprise

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Speaker 1: to anybody, but a big week ahead.

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Speaker 3: Enjoy it, Stephen, I will thank you. Michael, you too.

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Speaker 1: That was economist Stephen Cocolest, better known as the Kuk.

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

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Speaker 1: follow him on x using the handle of the KUK.

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Speaker 1: I'm Michael Thompson and this is Fear and Breed Q

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Speaker 1: and a