1 00:00:00,520 --> 00:00:03,920 Speaker 1: Inflation figures have come out up one percent in the 2 00:00:04,000 --> 00:00:07,480 Speaker 1: last quarter quarter to quarter, and the annual figure up 3 00:00:07,600 --> 00:00:12,319 Speaker 1: point two from three point six to three point eight. Now, 4 00:00:12,360 --> 00:00:14,200 Speaker 1: as I said before, if it had gone up to 5 00:00:14,280 --> 00:00:17,920 Speaker 1: four percent for the year, you can almost be assured 6 00:00:18,000 --> 00:00:21,439 Speaker 1: that would have meant an interest rate rise next Tuesday. 7 00:00:23,000 --> 00:00:27,200 Speaker 1: It's right on where the Reserve Bank predicted. But I 8 00:00:27,240 --> 00:00:31,080 Speaker 1: suppose they'd be looking at the trend. Will inflation continue 9 00:00:31,080 --> 00:00:34,760 Speaker 1: to rise? Be a tough decision around that boardroom table 10 00:00:34,800 --> 00:00:39,000 Speaker 1: next Tuesday, I imagine. Stephen Coucoula is Managing Director, Market Economics. Stephen, 11 00:00:39,040 --> 00:00:40,120 Speaker 1: good morning, Thanks for your time. 12 00:00:40,640 --> 00:00:41,280 Speaker 2: Good morning. 13 00:00:41,680 --> 00:00:43,160 Speaker 1: Where to for the Reserve Bank? 14 00:00:43,479 --> 00:00:47,720 Speaker 2: Ah, Yes, there's an audible five relief from well, the 15 00:00:47,760 --> 00:00:50,600 Speaker 2: Reserve Bank itself and I dare say most other people, 16 00:00:50,640 --> 00:00:54,000 Speaker 2: because even though the inflation rate is still a little 17 00:00:54,040 --> 00:00:57,960 Speaker 2: elevated three point eight percent, it was a little better 18 00:00:58,000 --> 00:00:59,800 Speaker 2: than most of the markets were thinking. It's not that 19 00:01:00,000 --> 00:01:03,320 Speaker 2: four percent that you alluded to. And the reaction in 20 00:01:03,600 --> 00:01:06,280 Speaker 2: money markets, which of course is people investing their money 21 00:01:06,280 --> 00:01:09,040 Speaker 2: on the outlook for interest rates is now well, dare 22 00:01:09,080 --> 00:01:11,880 Speaker 2: I say it pricing in not rate hikes, but rate 23 00:01:11,959 --> 00:01:14,920 Speaker 2: cuts by the early part of next year, because we 24 00:01:15,000 --> 00:01:17,760 Speaker 2: know that the economy is weak, we know that inflation 25 00:01:18,200 --> 00:01:20,000 Speaker 2: will fall in the next couple of quarters. 26 00:01:20,800 --> 00:01:24,640 Speaker 1: The federal budget predicted three point five at this stage. 27 00:01:24,920 --> 00:01:26,880 Speaker 1: Where does that leave the budget bottom line? 28 00:01:26,880 --> 00:01:29,280 Speaker 2: Now? Yeah, look the budget bottom line. There are so 29 00:01:29,319 --> 00:01:31,760 Speaker 2: many moving parts in the budget that you know, in 30 00:01:31,800 --> 00:01:34,720 Speaker 2: a sense, the budget improves with high inflation. You know, 31 00:01:34,760 --> 00:01:37,839 Speaker 2: the two budget surpluses that were delivered in the last 32 00:01:37,840 --> 00:01:39,960 Speaker 2: couple of years were large as a result of the 33 00:01:40,000 --> 00:01:44,160 Speaker 2: government collecting heaps of tax revenue from high commodity prices 34 00:01:44,200 --> 00:01:48,040 Speaker 2: and the indexation of a lot of other tax change 35 00:01:48,040 --> 00:01:50,840 Speaker 2: it seems like tobacco, alcohol, these sorts of things. So 36 00:01:50,960 --> 00:01:54,520 Speaker 2: in a sense, the budget's still still okay. From that perspective. 37 00:01:54,600 --> 00:01:57,200 Speaker 2: What is worrying from the budget and why I think 38 00:01:57,240 --> 00:02:00,560 Speaker 2: they're forecasting a deficit in the current financial year is 39 00:02:00,560 --> 00:02:02,120 Speaker 2: the week of growth. You know, the fact that we've 40 00:02:02,120 --> 00:02:05,360 Speaker 2: got unemployment creeping higher means that they're going to collect 41 00:02:05,400 --> 00:02:09,240 Speaker 2: less payg tax as you go in come tax. And 42 00:02:09,280 --> 00:02:11,519 Speaker 2: the fact that we consumers are spending less, which was 43 00:02:11,560 --> 00:02:14,760 Speaker 2: also confirmed in figures a short while ago, means they're 44 00:02:14,760 --> 00:02:17,239 Speaker 2: collecting a lot less GST and even though that's transferred 45 00:02:17,240 --> 00:02:19,440 Speaker 2: to the states, it is still tax revenue. 46 00:02:19,480 --> 00:02:23,239 Speaker 1: Of course, if we're spending less as consumers, what's driven 47 00:02:23,320 --> 00:02:23,959 Speaker 1: up inflation. 48 00:02:25,080 --> 00:02:29,640 Speaker 2: Yeah, look, it's a really interesting Usually this time around, 49 00:02:29,720 --> 00:02:32,480 Speaker 2: there are a lot of things that did I say it, 50 00:02:32,520 --> 00:02:35,120 Speaker 2: are outside the control of the Reserve Bank and interest rate. 51 00:02:35,160 --> 00:02:38,040 Speaker 2: It seems like alcohol and tobacco, which as I mentioned 52 00:02:38,040 --> 00:02:41,040 Speaker 2: a largely x I say, were up one and a 53 00:02:41,040 --> 00:02:44,120 Speaker 2: half percent for the quarter six point eight percent of 54 00:02:44,120 --> 00:02:45,720 Speaker 2: the year, so they were one of the high things. 55 00:02:46,240 --> 00:02:49,560 Speaker 2: Insurance up one point two for the quarter, six point 56 00:02:49,639 --> 00:02:51,960 Speaker 2: four for the years, so another very elevated figure, which 57 00:02:51,960 --> 00:02:55,919 Speaker 2: has got more to do with you know, insurance companies 58 00:02:55,960 --> 00:02:59,519 Speaker 2: try to reclaim the costs of bush fires for a 59 00:02:59,520 --> 00:03:01,680 Speaker 2: couple of year go and plugs and those sort of things. 60 00:03:01,760 --> 00:03:03,560 Speaker 2: And the other one was health. You know, health insurance 61 00:03:03,600 --> 00:03:05,720 Speaker 2: premiums went up in the quarter, so that's up five 62 00:03:05,760 --> 00:03:07,919 Speaker 2: point seven percent. So they're the things that you know, 63 00:03:08,040 --> 00:03:10,440 Speaker 2: regardless of whether interest rates were up or down, would 64 00:03:10,480 --> 00:03:13,080 Speaker 2: probably still be doing what they're doing. It's some of 65 00:03:13,120 --> 00:03:15,520 Speaker 2: the other things where prices are actually quite weak, and 66 00:03:15,600 --> 00:03:20,240 Speaker 2: so for example, you know, furniture prices are dropping and 67 00:03:20,280 --> 00:03:22,120 Speaker 2: things like that as we consumers are not going to 68 00:03:22,160 --> 00:03:24,160 Speaker 2: those sorts of stores much anymore. 69 00:03:25,480 --> 00:03:29,560 Speaker 1: State government spending and big infrastructure projects right around the country, 70 00:03:29,600 --> 00:03:31,840 Speaker 1: including here in SR is that driving it. 71 00:03:32,639 --> 00:03:36,120 Speaker 2: Look, it is to something extent. Yes, that we had, well, 72 00:03:36,160 --> 00:03:40,200 Speaker 2: what was an incredible lift in infrastructure at a time 73 00:03:40,280 --> 00:03:44,760 Speaker 2: when actually private sector invested in not not in residential 74 00:03:44,800 --> 00:03:48,920 Speaker 2: but in non residential construction things like warehouses and factories 75 00:03:48,960 --> 00:03:51,800 Speaker 2: and hotels and those sort of things was also strong, 76 00:03:51,840 --> 00:03:55,280 Speaker 2: and that was putting a lot of pressure on wages 77 00:03:55,320 --> 00:03:57,840 Speaker 2: in the sector. So trades you know, were hard to 78 00:03:57,880 --> 00:04:00,960 Speaker 2: get and that was putting up prices. We had the materials, 79 00:04:01,000 --> 00:04:03,800 Speaker 2: you know, the concrete and bricks and windows, a lot 80 00:04:03,840 --> 00:04:06,640 Speaker 2: st of stuff. They're also increasing at a city pace. 81 00:04:06,680 --> 00:04:09,200 Speaker 2: So yes, there's no doubt that what was a pretty 82 00:04:09,240 --> 00:04:12,560 Speaker 2: hefty ramp up of CAPEX, including things there I say, 83 00:04:12,800 --> 00:04:15,080 Speaker 2: like the early stage is getting ready to build a 84 00:04:15,120 --> 00:04:17,720 Speaker 2: submarines and those sort of thing. They're big ticket items 85 00:04:18,080 --> 00:04:21,640 Speaker 2: that's actually underpinning a little bit of activity and a 86 00:04:21,680 --> 00:04:24,440 Speaker 2: little bit of that inflation that's still there, all. 87 00:04:24,400 --> 00:04:26,400 Speaker 1: Right, So there's a few factors into it, but at 88 00:04:26,400 --> 00:04:29,560 Speaker 1: this stage you're pretty confident no change come next Tuesday. 89 00:04:29,880 --> 00:04:32,880 Speaker 2: Pretty look, you never say never in this business. But 90 00:04:33,279 --> 00:04:36,080 Speaker 2: as you can be look at the money markets are 91 00:04:36,080 --> 00:04:39,880 Speaker 2: saying ninety nine percent chance to no change next week. 92 00:04:39,960 --> 00:04:42,360 Speaker 1: Yeah all right, well that'll be interesting. We'll see what happens. 93 00:04:42,360 --> 00:04:43,640 Speaker 1: Good on your Stephen, Thank you for your time. 94 00:04:43,920 --> 00:04:44,280 Speaker 2: Thank you. 95 00:04:44,360 --> 00:04:49,320 Speaker 1: Stephen Toulis, Managing Director Market Economics. On the inflation figures 96 00:04:49,400 --> 00:04:52,560 Speaker 1: rising today one percent quarter to quarter, and you heard 97 00:04:52,560 --> 00:04:56,200 Speaker 1: the reasons for that, things like health insurance and other 98 00:04:56,360 --> 00:04:59,120 Speaker 1: insurance and we all know that insurance premiums. What is 99 00:04:59,160 --> 00:05:02,600 Speaker 1: going on, But it's it's obviously, as he said, companies 100 00:05:02,600 --> 00:05:06,440 Speaker 1: trying to recoup their losses from bushfires, floods, all the rest. 101 00:05:07,560 --> 00:05:11,880 Speaker 1: The Murray flood is the one that affected some South 102 00:05:11,880 --> 00:05:15,800 Speaker 1: Australians along Murray River communities in the last year. So 103 00:05:15,839 --> 00:05:19,919 Speaker 1: I suppose that's been felt through the insurance industry. But 104 00:05:20,880 --> 00:05:23,440 Speaker 1: one percent rise quartered a quarter up point two year 105 00:05:23,520 --> 00:05:26,760 Speaker 1: to year, and the Reserve Bank was looking at a 106 00:05:26,760 --> 00:05:29,200 Speaker 1: figure of exactly where it landed, three point eight four 107 00:05:29,240 --> 00:05:33,400 Speaker 1: percent would have likely mental. Certainly the chance off, the 108 00:05:33,440 --> 00:05:36,800 Speaker 1: strong chance of an interest rate rise hasn't been that high, 109 00:05:37,360 --> 00:05:42,000 Speaker 1: so potentially interest rates to be left aligne says Stephen Cocoleus. Anyway, 110 00:05:42,240 --> 00:05:44,440 Speaker 1: and he's in the game, he's an economist, he would 111 00:05:44,440 --> 00:05:47,680 Speaker 1: have a reasonable judge of where all that is at. 112 00:05:47,880 --> 00:05:50,679 Speaker 1: I just wonder if the Reserve Bank continues to think 113 00:05:50,760 --> 00:05:53,039 Speaker 1: this is going to be a trend into the future, 114 00:05:53,680 --> 00:05:56,280 Speaker 1: well what does it mean longer term? So it might 115 00:05:56,320 --> 00:05:59,680 Speaker 1: get away with things on hold this time around, but 116 00:06:00,760 --> 00:06:04,200 Speaker 1: a talk of a rate cut into next year or maybe, 117 00:06:04,600 --> 00:06:06,520 Speaker 1: and that might come just in time for the next 118 00:06:06,520 --> 00:06:07,840 Speaker 1: federal election. Who knows.