1 00:00:08,039 --> 00:00:11,010 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean Aylmer, and, as 2 00:00:11,010 --> 00:00:13,980 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:13,980 --> 00:00:16,080 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K. 4 00:00:16,230 --> 00:00:19,380 Sean Aylmer: com, and on Twitter using the handle thekouk. Stephen, good morning. 5 00:00:19,860 --> 00:00:22,410 Stephen Koukoulas: Good morning and a happy new financial year to everybody, too. 6 00:00:23,280 --> 00:00:25,950 Sean Aylmer: Yes. We've got quite a remarkable last financial year, what, 7 00:00:26,340 --> 00:00:29,040 Sean Aylmer: more rate rises last financial year than ever before. 8 00:00:29,309 --> 00:00:32,130 Stephen Koukoulas: That's right. Yes, we had one virtually every month. Obviously, 9 00:00:32,130 --> 00:00:34,650 Stephen Koukoulas: the bank doesn't meet in January, so there was no 10 00:00:34,650 --> 00:00:37,170 Stephen Koukoulas: move then and they paused in April. But I think 11 00:00:37,170 --> 00:00:39,750 Stephen Koukoulas: for every other month, so for 10 of the 12 months, they 12 00:00:39,750 --> 00:00:40,500 Stephen Koukoulas: hike rates. 13 00:00:40,950 --> 00:00:44,429 Sean Aylmer: Pretty incredible. Now, just very quickly, we'll talk about last 14 00:00:44,429 --> 00:00:46,709 Sean Aylmer: week, but this week we've got the Reserve Bank meeting 15 00:00:46,710 --> 00:00:50,429 Sean Aylmer: tomorrow, so that's what we're interested in. Those inflation numbers 16 00:00:50,429 --> 00:00:51,870 Sean Aylmer: last week were kind of interesting, though. 17 00:00:51,871 --> 00:00:56,520 Stephen Koukoulas: They were. They undershot everybody's expectations. They came in at an 18 00:00:56,520 --> 00:01:00,300 Stephen Koukoulas: annual rate of 5. 6%. The market consensus I think 19 00:01:00,300 --> 00:01:03,900 Stephen Koukoulas: was around about 6.1% so it came in well below 20 00:01:03,900 --> 00:01:07,590 Stephen Koukoulas: expectations. That was after the previous month was above expectations. 21 00:01:07,590 --> 00:01:09,720 Stephen Koukoulas: So a couple of things they want to highlight, the 22 00:01:09,750 --> 00:01:13,049 Stephen Koukoulas: volatility and monthly inflation numbers, petrol prices going up and down. 23 00:01:13,680 --> 00:01:15,209 Stephen Koukoulas: I think we all noticed that when we fill up 24 00:01:15,209 --> 00:01:17,550 Stephen Koukoulas: our car. So that has a big impact on month- on- 25 00:01:17,550 --> 00:01:21,360 Stephen Koukoulas: month CPI. But the important thing is that the momentum 26 00:01:21,900 --> 00:01:25,259 Stephen Koukoulas: in inflation is clearly down in December last year when 27 00:01:25,259 --> 00:01:28,319 Stephen Koukoulas: inflation was running at 8. 4%. That was that really 28 00:01:28,319 --> 00:01:31,379 Stephen Koukoulas: painful cost of living pressure, now down to 5. 6, so 29 00:01:32,190 --> 00:01:36,540 Stephen Koukoulas: well above the RBA's target range. But it's something that 30 00:01:36,540 --> 00:01:38,759 Stephen Koukoulas: I think the RBO would be, first of all, pleased 31 00:01:38,760 --> 00:01:42,630 Stephen Koukoulas: to see. But given that the last board meeting was 32 00:01:42,630 --> 00:01:45,149 Stephen Koukoulas: a line ball decision to hike and the reason they 33 00:01:45,150 --> 00:01:48,540 Stephen Koukoulas: did hike was partly wages, partly that inflation shock that 34 00:01:48,540 --> 00:01:51,360 Stephen Koukoulas: we saw last month so I think, on balance, they're 35 00:01:51,360 --> 00:01:54,450 Stephen Koukoulas: probably on hold, but, but it is a line ball call. 36 00:01:54,990 --> 00:01:58,260 Sean Aylmer: Okay. So they're meeting tomorrow. What is it that would 37 00:01:58,469 --> 00:02:01,620 Sean Aylmer: push rates higher? Is it wages that's a big problem 38 00:02:01,679 --> 00:02:03,570 Sean Aylmer: or the big concern for the Reserve Bank board? 39 00:02:03,780 --> 00:02:06,600 Stephen Koukoulas: Yeah. Well, we haven't had any fresh news on wages 40 00:02:06,600 --> 00:02:09,330 Stephen Koukoulas: in the last month so, in a sense, maybe there's 41 00:02:09,330 --> 00:02:11,760 Stephen Koukoulas: a case to wait until we get the next, well, 42 00:02:11,760 --> 00:02:14,130 Stephen Koukoulas: next labor force numbers as well as the next wages 43 00:02:14,130 --> 00:02:16,769 Stephen Koukoulas: data and they're not out for another month, of course. 44 00:02:17,370 --> 00:02:19,740 Stephen Koukoulas: The other things that have occurred, which might tilt them 45 00:02:19,740 --> 00:02:22,199 Stephen Koukoulas: in that direction and, of course, we'll see this in 46 00:02:22,199 --> 00:02:25,889 Stephen Koukoulas: data today that we've got the house price index coming 47 00:02:25,889 --> 00:02:29,040 Stephen Koukoulas: out from CoreLogic and that will show a jump in 48 00:02:29,040 --> 00:02:32,160 Stephen Koukoulas: house prices. And that's something, not that the RBA target 49 00:02:32,160 --> 00:02:34,200 Stephen Koukoulas: house prices, but there is a wealth effect when house 50 00:02:34,200 --> 00:02:36,900 Stephen Koukoulas: prices go up. We Australians tend to feel wealthier, we 51 00:02:36,900 --> 00:02:39,780 Stephen Koukoulas: tend to spend more when that's the case. And the 52 00:02:39,780 --> 00:02:43,470 Stephen Koukoulas: RBA would probably want to lean against this rebound in 53 00:02:43,470 --> 00:02:46,230 Stephen Koukoulas: house prices if, in fact, that's what we're seeing. Also 54 00:02:46,230 --> 00:02:48,750 Stephen Koukoulas: last week we had a retail sales number, which while 55 00:02:48,750 --> 00:02:51,300 Stephen Koukoulas: I don't think, again, the month- to- month volatility in 56 00:02:51,300 --> 00:02:54,179 Stephen Koukoulas: retail sales is a bit like the inflation numbers, you 57 00:02:54,179 --> 00:02:57,120 Stephen Koukoulas: can get these choppy results, but it was above expectations. 58 00:02:57,120 --> 00:02:59,550 Stephen Koukoulas: We had a 0. 7% rise in the month of 59 00:02:59,609 --> 00:03:03,358 Stephen Koukoulas: May and that's sort of suggesting that maybe that cooling 60 00:03:03,360 --> 00:03:05,880 Stephen Koukoulas: in the economy that's evident in a range of indicators 61 00:03:06,480 --> 00:03:09,150 Stephen Koukoulas: is not quite as severe as we were thinking in 62 00:03:09,150 --> 00:03:10,980 Stephen Koukoulas: terms of retail and consumer spending. 63 00:03:11,429 --> 00:03:13,289 Sean Aylmer: Yeah, it's very hard to get your head around, well, 64 00:03:13,559 --> 00:03:15,388 Sean Aylmer: maybe not for you, but for me it's very hard 65 00:03:15,630 --> 00:03:18,270 Sean Aylmer: to kind of work out exactly what's going on right now. 66 00:03:18,629 --> 00:03:21,209 Stephen Koukoulas: Oh, it's hard for me, too, because we're getting this 67 00:03:21,360 --> 00:03:23,669 Stephen Koukoulas: choppy news and, again, it's one of the... Look, one 68 00:03:23,669 --> 00:03:25,260 Stephen Koukoulas: of the joys in economics is that we do get 69 00:03:25,260 --> 00:03:28,710 Stephen Koukoulas: a high frequency run of data on housing, on building 70 00:03:28,710 --> 00:03:33,089 Stephen Koukoulas: approvals, retail spending, consumer sentiment, CapEx, business investment, a myriad 71 00:03:33,089 --> 00:03:37,260 Stephen Koukoulas: of things go on and rarely do they all point into one 72 00:03:37,260 --> 00:03:41,280 Stephen Koukoulas: direction. They're rarely all super strong or all super weak. 73 00:03:41,370 --> 00:03:43,500 Stephen Koukoulas: I guess that's the interpretation of these numbers, which is 74 00:03:43,500 --> 00:03:47,130 Stephen Koukoulas: the tricky thing for us, humble economists, but also for 75 00:03:47,130 --> 00:03:49,769 Stephen Koukoulas: the Reserve Bank. When they're sitting down, they're mere mortals, 76 00:03:49,770 --> 00:03:52,379 Stephen Koukoulas: too. Don't forget. They've got lots of smart economists, there's 77 00:03:52,379 --> 00:03:52,949 Stephen Koukoulas: some really- 78 00:03:52,949 --> 00:03:52,950 Sean Aylmer: No. 79 00:03:52,950 --> 00:03:55,679 Stephen Koukoulas: ... (inaudible) economists. But they look at these numbers 80 00:03:55,679 --> 00:03:57,300 Stephen Koukoulas: and they see one up, one down, one up, one 81 00:03:57,300 --> 00:03:59,280 Stephen Koukoulas: down, and they think, " Well, what do we do when we've already 82 00:03:59,520 --> 00:04:01,710 Stephen Koukoulas: hiked 400 basis points?" So yes, it is hard to 83 00:04:01,710 --> 00:04:04,800 Stephen Koukoulas: get a unambiguous read on just where the economy is. 84 00:04:05,580 --> 00:04:08,189 Sean Aylmer: And I suppose then all points of data become more 85 00:04:08,190 --> 00:04:11,099 Sean Aylmer: interesting. I mean, job ads this week, for example, will 86 00:04:11,100 --> 00:04:13,710 Sean Aylmer: be interesting because we know that the Reserve Bank wants 87 00:04:13,710 --> 00:04:15,420 Sean Aylmer: some of the heat to come out of the market. 88 00:04:15,900 --> 00:04:18,479 Stephen Koukoulas: Oh, indeed. And the deputy governor, I think we spoke 89 00:04:18,480 --> 00:04:22,080 Stephen Koukoulas: of this last week, Deputy Governor Michele Bullock mentioned that 90 00:04:22,110 --> 00:04:25,410 Stephen Koukoulas: one of the ways in which they'll be confident that 91 00:04:25,410 --> 00:04:29,670 Stephen Koukoulas: inflation's back to that 2 to 3% target range is 92 00:04:29,789 --> 00:04:33,270 Stephen Koukoulas: if wages growth is well contained. At the moment, the 93 00:04:33,300 --> 00:04:36,870 Stephen Koukoulas: RBA is a little concerned about the rate of wages 94 00:04:36,870 --> 00:04:40,260 Stephen Koukoulas: growth with the unemployment rate below 4%. And, in fact, 95 00:04:40,260 --> 00:04:43,469 Stephen Koukoulas: she was suggesting that we probably need an unemployment rate 96 00:04:43,799 --> 00:04:46,320 Stephen Koukoulas: around about four and half percent before we can be 97 00:04:46,320 --> 00:04:49,950 Stephen Koukoulas: sure that wages growth will not feed into inflation. So 98 00:04:49,950 --> 00:04:52,110 Stephen Koukoulas: job ads, yes, in a sense, we need to see 99 00:04:52,110 --> 00:04:54,060 Stephen Koukoulas: them slowing down and I think they will. We do 100 00:04:54,060 --> 00:04:56,940 Stephen Koukoulas: know the economy is slowing more broadly. We saw the 101 00:04:57,029 --> 00:05:01,020 Stephen Koukoulas: Bureau of Stats job vacancy series last week down again, 102 00:05:01,020 --> 00:05:04,469 Stephen Koukoulas: so they're down 10% from albeit an absolutely super strong 103 00:05:04,469 --> 00:05:08,070 Stephen Koukoulas: level. But the cards are falling into line that maybe, 104 00:05:08,070 --> 00:05:10,050 Stephen Koukoulas: just maybe we're getting this turning point in the labor 105 00:05:10,050 --> 00:05:14,428 Stephen Koukoulas: market and some of these fears of unwelcome and unsustainable 106 00:05:14,428 --> 00:05:17,099 Stephen Koukoulas: increases in wages will not be there, simply because the 107 00:05:17,099 --> 00:05:20,039 Stephen Koukoulas: labor market's starting to soften in line with the softening 108 00:05:20,040 --> 00:05:21,270 Stephen Koukoulas: in the economy more broadly. 109 00:05:21,660 --> 00:05:23,849 Sean Aylmer: Stephen, enjoy a very busy week. 110 00:05:24,059 --> 00:05:26,010 Stephen Koukoulas: It'll be a great week, Sean. I can't wait for 111 00:05:26,010 --> 00:05:26,580 Stephen Koukoulas: it. Thank you. 112 00:05:27,150 --> 00:05:29,760 Sean Aylmer: That's economist Stephen Koukoulas, better known as The Kouk. You 113 00:05:29,760 --> 00:05:32,250 Sean Aylmer: can find him at thekouk. com and follow him on 114 00:05:32,250 --> 00:05:34,710 Sean Aylmer: Twitter using the handle thekouk. I'm Sean Aylmer, and this 115 00:05:34,710 --> 00:05:36,150 Sean Aylmer: is Fear and Greed, The Week Ahead.