1 00:00:05,640 --> 00:00:08,320 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,440 --> 00:00:11,440 Speaker 1: Underlying inflation fell to its lowest level in the three 3 00:00:11,520 --> 00:00:14,480 Speaker 1: years in the December quarter, according to the Bureau Statistics. 4 00:00:14,840 --> 00:00:18,280 Speaker 1: The figures saw annual trimmed mean inflation come in at 5 00:00:18,320 --> 00:00:21,520 Speaker 1: three point two percent, down from three point six percent 6 00:00:21,600 --> 00:00:23,680 Speaker 1: in the previous quarter. The headline rate was even better, 7 00:00:23,680 --> 00:00:26,599 Speaker 1: two point four percent for the year, just zero point 8 00:00:26,640 --> 00:00:29,600 Speaker 1: two percent for the December quarter. The decline was steeper 9 00:00:29,640 --> 00:00:32,040 Speaker 1: than many expected, and that will put pressure on the 10 00:00:32,040 --> 00:00:34,600 Speaker 1: Reserve Bank to cut rates when it meets next month. 11 00:00:34,680 --> 00:00:37,800 Speaker 1: Warren Hogan is Managing director of EQ Economics and Economic 12 00:00:37,840 --> 00:00:40,600 Speaker 1: Advisor at Judo Bank. He's also has a great track 13 00:00:40,640 --> 00:00:43,400 Speaker 1: record of predicting interest rates. Warren, Welcome back to Fear 14 00:00:43,400 --> 00:00:43,760 Speaker 1: and Greed. 15 00:00:44,400 --> 00:00:46,080 Speaker 2: Thanks for having me on the show. Sean, it's good 16 00:00:46,080 --> 00:00:47,319 Speaker 2: to be with you now. 17 00:00:47,360 --> 00:00:49,960 Speaker 1: You haven't been the most optimistic economist out there, at 18 00:00:50,040 --> 00:00:55,000 Speaker 1: least for wee homeowners. You have actually expected that rates well, 19 00:00:55,760 --> 00:00:58,080 Speaker 1: they probably would stay at stable at least for the 20 00:00:58,120 --> 00:01:01,280 Speaker 1: time being. Do you think what we saw yesterday is 21 00:01:01,400 --> 00:01:02,920 Speaker 1: enough to shift the Reserve Bank? 22 00:01:03,360 --> 00:01:07,200 Speaker 2: Look, it could be. It's very hard to tell My 23 00:01:08,240 --> 00:01:11,120 Speaker 2: assessment of the numbers, along with the broader assessment of 24 00:01:11,120 --> 00:01:15,440 Speaker 2: the economy, is that we don't need an easy evnetary policy. 25 00:01:16,600 --> 00:01:19,080 Speaker 2: If you ask the question, what is a rate cut 26 00:01:19,120 --> 00:01:22,720 Speaker 2: gain to achieve, well, the basic answer is more employment 27 00:01:22,800 --> 00:01:27,039 Speaker 2: and more inflation, and we don't really need more inflation. 28 00:01:27,120 --> 00:01:30,800 Speaker 2: It's still above target and it's still the main source 29 00:01:30,840 --> 00:01:34,000 Speaker 2: of concern for our community. And of course employment strong 30 00:01:34,200 --> 00:01:36,840 Speaker 2: and we know from the latest job vacancy data that 31 00:01:36,920 --> 00:01:40,319 Speaker 2: was released a few weeks ago that actually labor demands 32 00:01:40,360 --> 00:01:43,840 Speaker 2: picking up once again. So I don't think there's a 33 00:01:43,880 --> 00:01:46,800 Speaker 2: case to do it. I think it's actually risky, but 34 00:01:46,840 --> 00:01:50,280 Speaker 2: that is not necessarily what's going to drive the decision. 35 00:01:50,440 --> 00:01:54,800 Speaker 2: There's a lot of positioning here, and there's two issues. 36 00:01:54,840 --> 00:01:57,640 Speaker 2: One is the direct issue of the politics and the 37 00:01:57,640 --> 00:01:59,720 Speaker 2: general election that's coming up, and the other one is 38 00:01:59,760 --> 00:02:04,040 Speaker 2: the standing in the community after some missteps in the pandemic. 39 00:02:04,120 --> 00:02:06,720 Speaker 2: So there is genuine issues that the board will be 40 00:02:06,760 --> 00:02:08,560 Speaker 2: considering on that front. But if it was just up 41 00:02:08,600 --> 00:02:10,720 Speaker 2: to the economic case, no, they wouldn't even be considering 42 00:02:10,720 --> 00:02:13,800 Speaker 2: a rate cut yet they'd be remaining patient because they 43 00:02:13,880 --> 00:02:15,800 Speaker 2: never hike rates as much as everyone else there are 44 00:02:15,800 --> 00:02:17,320 Speaker 2: hacked rates as much as we would have done in 45 00:02:17,360 --> 00:02:20,079 Speaker 2: the past. There are trying this experiment and look it 46 00:02:20,080 --> 00:02:22,200 Speaker 2: seems to be working. But part of that experiment is 47 00:02:22,200 --> 00:02:23,760 Speaker 2: they can't cut rates prematurely. 48 00:02:24,560 --> 00:02:27,560 Speaker 1: So there might not be an economic case. But the 49 00:02:27,560 --> 00:02:29,799 Speaker 1: inference of what you're saying is there could be a 50 00:02:29,840 --> 00:02:34,760 Speaker 1: non economic case. Perhaps that's community based, perhaps that's political based. 51 00:02:35,560 --> 00:02:39,600 Speaker 1: Do you think under Michelle Bullock the governor, they will 52 00:02:39,639 --> 00:02:41,320 Speaker 1: cut next month? 53 00:02:42,639 --> 00:02:47,000 Speaker 2: I don't think, but I don't know the governor well enough, 54 00:02:47,480 --> 00:02:49,920 Speaker 2: and I don't know the dynamics and the senior team 55 00:02:49,919 --> 00:02:51,959 Speaker 2: at the RBA, and I certainly don't know the dynamics 56 00:02:51,960 --> 00:02:54,560 Speaker 2: of the board because there's a lot of judgment calls 57 00:02:54,560 --> 00:02:57,240 Speaker 2: in this. I mean, I think one of the misleading 58 00:02:57,320 --> 00:03:00,840 Speaker 2: elements of market pricing, which is now probably almost fully 59 00:03:00,840 --> 00:03:04,080 Speaker 2: priced for a rate cut. And the general commentary is 60 00:03:04,160 --> 00:03:07,760 Speaker 2: this idea that the political risks for them are one way, 61 00:03:08,000 --> 00:03:10,880 Speaker 2: and that is that they'll upset this government if they don't, 62 00:03:11,120 --> 00:03:14,280 Speaker 2: or they'll please this government if they do. But this 63 00:03:14,440 --> 00:03:18,959 Speaker 2: is a two party democracy, it remains that way. Recent 64 00:03:19,000 --> 00:03:21,120 Speaker 2: evidence suggests we might be getting even more heading in 65 00:03:21,160 --> 00:03:24,600 Speaker 2: that direction. After the Queensland election, So they've got actually 66 00:03:25,360 --> 00:03:28,560 Speaker 2: a binary political outcome, which should even itself out, because 67 00:03:28,800 --> 00:03:32,320 Speaker 2: if they do something that helps one and hurts the other, 68 00:03:32,400 --> 00:03:36,200 Speaker 2: that's dangerous for the institution. So look, I don't know, 69 00:03:36,440 --> 00:03:39,080 Speaker 2: it's very hard. And this is why markets can't cope. 70 00:03:39,280 --> 00:03:42,800 Speaker 2: Markets can't cope pricing political risks because they're not used 71 00:03:42,840 --> 00:03:46,040 Speaker 2: to assessing them. So I would say no, but you know, 72 00:03:46,440 --> 00:03:49,280 Speaker 2: I don't want to. You know, it sound like I'm 73 00:03:49,320 --> 00:03:51,200 Speaker 2: sort of digging in my heels in but you know, 74 00:03:51,280 --> 00:03:53,000 Speaker 2: I just sort of take a view on what's best 75 00:03:53,000 --> 00:03:55,400 Speaker 2: for the economy and our community and everyone in our community, 76 00:03:55,400 --> 00:03:57,320 Speaker 2: and getting rid of inflation is the number one issue, 77 00:03:57,360 --> 00:03:59,120 Speaker 2: and I think we saw that at elections all around 78 00:03:59,120 --> 00:04:02,920 Speaker 2: the world last year, a big swing against governments. 79 00:04:03,280 --> 00:04:06,400 Speaker 1: Okay, what about the inflation numbers yesterday. We still do 80 00:04:06,480 --> 00:04:09,520 Speaker 1: have quite a bit of services inflation, Lauren. 81 00:04:10,200 --> 00:04:13,040 Speaker 2: Yeah, So the numbers that we got show a welcome 82 00:04:13,440 --> 00:04:15,840 Speaker 2: easing of inflation pressure. So the worry at the start 83 00:04:15,840 --> 00:04:17,440 Speaker 2: of last year was that it had stopped falling and 84 00:04:17,480 --> 00:04:19,800 Speaker 2: stopped falling at about four percent or just under, which 85 00:04:19,880 --> 00:04:22,600 Speaker 2: was way too high. But in the last six months 86 00:04:22,600 --> 00:04:24,479 Speaker 2: of twenty twenty four, there has been a drop down. 87 00:04:24,560 --> 00:04:28,600 Speaker 2: It looks like when you extract all the effective government subsidies, 88 00:04:28,600 --> 00:04:31,320 Speaker 2: which is really important and really tricky, and one sort 89 00:04:31,320 --> 00:04:33,680 Speaker 2: of myth out there is that government subsidies don't affect 90 00:04:33,680 --> 00:04:36,520 Speaker 2: trim mean or the commonly used core measure that they do. 91 00:04:37,320 --> 00:04:40,560 Speaker 2: So my assessment is inflation is probably running on a 92 00:04:40,600 --> 00:04:42,880 Speaker 2: headline basis around three to three and a quarter, with 93 00:04:42,920 --> 00:04:45,560 Speaker 2: a few traditional volatile items keeping it a bit low, 94 00:04:45,560 --> 00:04:47,480 Speaker 2: and core inflation is running around three and a half 95 00:04:47,480 --> 00:04:49,120 Speaker 2: to three and a quarter to three and a half, 96 00:04:49,160 --> 00:04:51,640 Speaker 2: just a bit higher than the reported measure. So it's 97 00:04:51,680 --> 00:04:53,839 Speaker 2: good we're getting there, but you know, it's too early 98 00:04:53,880 --> 00:04:55,800 Speaker 2: to declare victory. And of course the question of the 99 00:04:55,839 --> 00:05:00,719 Speaker 2: RBAH is can they be confident inflations returning to target sustainably? 100 00:05:01,080 --> 00:05:03,560 Speaker 2: And the question about sustainably is still an open one, 101 00:05:03,680 --> 00:05:06,320 Speaker 2: and that's also shaped by the fact that consumer spending 102 00:05:06,400 --> 00:05:09,480 Speaker 2: is picking up, employment strong, consumer confidences up in the 103 00:05:09,560 --> 00:05:13,040 Speaker 2: end of last year. So the inflation progress is good, 104 00:05:13,080 --> 00:05:14,680 Speaker 2: but it's modest and not as good as what the 105 00:05:14,680 --> 00:05:16,960 Speaker 2: headlines are reporting. And of course, in this sort of 106 00:05:17,000 --> 00:05:22,039 Speaker 2: federal political environment, the headlines probably aren't the best way 107 00:05:22,080 --> 00:05:25,000 Speaker 2: to think about it. They're pretty punchy. 108 00:05:25,400 --> 00:05:27,400 Speaker 1: Say we think, Rarren. We'll be back in a minute. 109 00:05:34,480 --> 00:05:39,000 Speaker 1: I'm speaking to economist Warren Hogan. This economic cycle. Is 110 00:05:39,040 --> 00:05:41,679 Speaker 1: it a typical economic cycle? 111 00:05:42,480 --> 00:05:45,200 Speaker 2: No, it's not at all. And this is the difficulty. 112 00:05:45,360 --> 00:05:47,880 Speaker 2: I mean, I think the RBA is probably the closest 113 00:05:47,880 --> 00:05:51,279 Speaker 2: to understanding that the big shifts. I think the Treasury 114 00:05:51,279 --> 00:05:54,160 Speaker 2: has struggled with it, and of course most bank economists, 115 00:05:54,040 --> 00:05:56,080 Speaker 2: as the most private economists, seem to be struggling. The 116 00:05:56,120 --> 00:05:59,440 Speaker 2: big shift has been the retirement of the baby burners. 117 00:05:59,480 --> 00:06:02,200 Speaker 2: And what we're no scenes arise in dependency in our economy. 118 00:06:02,320 --> 00:06:05,000 Speaker 2: Our working age population is a share of the total 119 00:06:05,000 --> 00:06:08,599 Speaker 2: population is shrinking, and that fundamentally changes the balance between 120 00:06:08,640 --> 00:06:11,359 Speaker 2: supply and demanding the economy. And we've gone from a 121 00:06:11,400 --> 00:06:15,840 Speaker 2: world for sixty years of excess supply of labor and 122 00:06:16,000 --> 00:06:18,280 Speaker 2: unemployment was the issue. And it's all changed and it's 123 00:06:18,279 --> 00:06:20,719 Speaker 2: all gone the other way. And the thing that matters 124 00:06:20,760 --> 00:06:22,920 Speaker 2: for the economic dynamics is the change. It's not the 125 00:06:23,000 --> 00:06:25,440 Speaker 2: level of the dependency rate, it's the change. So we've 126 00:06:25,440 --> 00:06:28,159 Speaker 2: got this excess demand for labor, and one of the 127 00:06:28,200 --> 00:06:30,600 Speaker 2: things that's come up, which no one's paying enough attention 128 00:06:30,680 --> 00:06:32,680 Speaker 2: to is that this idea that wages are starting to 129 00:06:32,800 --> 00:06:35,200 Speaker 2: roll over. The wage pricing next has come down a 130 00:06:35,200 --> 00:06:38,640 Speaker 2: bit in the middle of last year, just over four 131 00:06:38,680 --> 00:06:42,760 Speaker 2: to three and a half. But the EBA numbers that 132 00:06:42,800 --> 00:06:44,720 Speaker 2: the Fair Work Commission puts out have shown in the 133 00:06:44,800 --> 00:06:47,000 Speaker 2: last three months of twenty twenty four they're picking back 134 00:06:47,040 --> 00:06:48,640 Speaker 2: up again, and we see it on our TV's. With 135 00:06:48,680 --> 00:06:51,599 Speaker 2: the union disputes, we saw a number of settlements of 136 00:06:51,640 --> 00:06:55,600 Speaker 2: more like five or six percent. So the economy has changed, 137 00:06:55,600 --> 00:06:58,360 Speaker 2: but the fundamentals are still there. So I think a 138 00:07:00,120 --> 00:07:03,480 Speaker 2: very difficult economy to understand. And of course, in the 139 00:07:03,520 --> 00:07:05,960 Speaker 2: context of a lot of debt, particularly household debt, there's 140 00:07:05,960 --> 00:07:08,800 Speaker 2: this natural bias to want to have lower rates, but 141 00:07:08,920 --> 00:07:11,560 Speaker 2: of course the risks are that we're in a world 142 00:07:11,600 --> 00:07:16,000 Speaker 2: where to minimize the danger in the economy you probably 143 00:07:16,000 --> 00:07:18,280 Speaker 2: want to buyas towards higher rates, but that's not what's 144 00:07:18,280 --> 00:07:21,040 Speaker 2: happening in any way, shape or form. So it's a 145 00:07:21,120 --> 00:07:23,160 Speaker 2: very tricky period and hard for the RBA because I 146 00:07:23,160 --> 00:07:28,040 Speaker 2: think they do understand the risks. Butliticization of monetary policy, 147 00:07:28,040 --> 00:07:29,560 Speaker 2: which started all the way back at the end of 148 00:07:29,600 --> 00:07:33,239 Speaker 2: last century with John Howard's debt bus and all that stuff. 149 00:07:33,560 --> 00:07:35,000 Speaker 2: I mean, it's just got worse and worse over the 150 00:07:35,040 --> 00:07:37,320 Speaker 2: last twenty five years. And it's very hard for the 151 00:07:37,360 --> 00:07:39,800 Speaker 2: RBA to be genuinely independent and do the right thing 152 00:07:39,840 --> 00:07:42,320 Speaker 2: by the community over the medium to long term, which 153 00:07:42,360 --> 00:07:44,520 Speaker 2: they pretty much have done for the last thirty years. 154 00:07:44,560 --> 00:07:46,280 Speaker 2: But that's now under a lot of pressure. 155 00:07:46,680 --> 00:07:49,200 Speaker 1: How do you think the community are handling what's going on? 156 00:07:49,240 --> 00:07:51,720 Speaker 1: And I suppose I'm referring to the cost of living pressure. 157 00:07:51,960 --> 00:07:56,080 Speaker 1: I know that we have strong employment and inflation may 158 00:07:56,160 --> 00:07:58,760 Speaker 1: or may not be heading towards a sustainable rate, but 159 00:07:58,840 --> 00:08:01,600 Speaker 1: economic growth is still relatively low and the cost of 160 00:08:01,640 --> 00:08:03,000 Speaker 1: living pressures are real. 161 00:08:03,800 --> 00:08:07,280 Speaker 2: Yeah yeah, well, no one in terms of the household level, 162 00:08:07,280 --> 00:08:10,120 Speaker 2: No one cares about the rate of j DP. It's 163 00:08:10,120 --> 00:08:13,960 Speaker 2: a big Employment matters and the cost of living matters, 164 00:08:14,840 --> 00:08:18,760 Speaker 2: and the cost of living is just absolutely diabolical. It's 165 00:08:18,800 --> 00:08:23,920 Speaker 2: fundamentally changed the way Australians feel about their position. Their 166 00:08:24,000 --> 00:08:27,120 Speaker 2: living standards have generally stepped down ten percent and sort 167 00:08:27,160 --> 00:08:29,280 Speaker 2: of middle and lower Australians probably by a bit more. 168 00:08:30,080 --> 00:08:32,960 Speaker 2: And that was after a world where we consistently had 169 00:08:33,280 --> 00:08:36,880 Speaker 2: one two percent gains a year for twenty years to 170 00:08:36,920 --> 00:08:38,719 Speaker 2: make Australia one of the richest countries in the world, 171 00:08:38,760 --> 00:08:41,040 Speaker 2: and Australian some of the richest people the world has 172 00:08:41,080 --> 00:08:44,040 Speaker 2: ever seen. So they're struggling to cope with this new 173 00:08:44,360 --> 00:08:47,160 Speaker 2: world of shifting backwards. And I think that's happening in 174 00:08:47,200 --> 00:08:49,640 Speaker 2: other countries as well, and hence the political backlafe. So 175 00:08:50,200 --> 00:08:54,280 Speaker 2: I think Australians, you know, the government has taken a 176 00:08:54,360 --> 00:08:56,160 Speaker 2: very different strategy and I think it's going to cost 177 00:08:56,160 --> 00:09:00,440 Speaker 2: them politically very heavily in the next few months. But 178 00:09:00,559 --> 00:09:02,880 Speaker 2: they've taken a view that it's better to maintain employment 179 00:09:02,920 --> 00:09:05,160 Speaker 2: and let the inflation thing drag on for longer. I 180 00:09:05,160 --> 00:09:08,960 Speaker 2: think that's a total miscalculation politically, and I think Australians 181 00:09:09,360 --> 00:09:12,400 Speaker 2: demonstrated in the last thirty years that they've got the 182 00:09:12,760 --> 00:09:15,360 Speaker 2: what do you call it, intestinal fortitude to take a 183 00:09:15,360 --> 00:09:17,000 Speaker 2: bit of a hit. And I think we now know 184 00:09:17,120 --> 00:09:19,040 Speaker 2: actually that if rates had have gone up more, that 185 00:09:19,120 --> 00:09:21,960 Speaker 2: the employment consequences wouldn't have been as bad as we feared. 186 00:09:22,800 --> 00:09:25,400 Speaker 2: So yeah, I think Australians are doing it tough. But 187 00:09:25,520 --> 00:09:27,480 Speaker 2: if we got rid of that inflation, or at least 188 00:09:27,520 --> 00:09:30,040 Speaker 2: stabilized it, they would be doing a lot better and 189 00:09:30,040 --> 00:09:32,320 Speaker 2: now I think that should be the priority. But this 190 00:09:32,400 --> 00:09:35,480 Speaker 2: country's well placed in this world because we've got a 191 00:09:35,520 --> 00:09:38,960 Speaker 2: big world, a lot of change coming with this technology, 192 00:09:39,000 --> 00:09:42,560 Speaker 2: of the geopolitical situation, and you know, one of the 193 00:09:42,559 --> 00:09:44,440 Speaker 2: reasons we've done so well in last thirty years is 194 00:09:44,440 --> 00:09:47,240 Speaker 2: that we've been able to adapt both economically and socially. 195 00:09:47,320 --> 00:09:51,319 Speaker 2: So it is an interesting time in Australian history. In 196 00:09:51,360 --> 00:09:54,440 Speaker 2: the next few months actually are going to be pretty poignant, 197 00:09:54,760 --> 00:09:59,120 Speaker 2: particularly if the RBA does buckle and cuts rates. I 198 00:09:59,120 --> 00:10:02,560 Speaker 2: think that's I think it's good. Well, go down is 199 00:10:02,600 --> 00:10:05,360 Speaker 2: not a great market point in our modern history. 200 00:10:05,720 --> 00:10:07,400 Speaker 1: Lauren, thank you for talking to Fear and Greed. 201 00:10:07,600 --> 00:10:08,120 Speaker 2: Thanks Sean. 202 00:10:08,520 --> 00:10:11,200 Speaker 1: That was Barren Hogan, Managing director of EQ Economics and 203 00:10:11,320 --> 00:10:14,319 Speaker 1: Economic Advisor at Judo Bank. This is the Fear and 204 00:10:14,360 --> 00:10:16,880 Speaker 1: Greed Business Interview. Join us every morning for the full 205 00:10:16,920 --> 00:10:19,360 Speaker 1: episode of Fear and Greed. Daily business news for people 206 00:10:19,400 --> 00:10:26,960 Speaker 1: who make their own decisions. I'm Sean Elmer. Enjoy your day.