1 00:00:08,760 --> 00:00:11,450 Sean Aylmer: Welcome to Fear and Greed - The week ahead. As always, I have with 2 00:00:11,450 --> 00:00:14,730 Sean Aylmer: me this morning, economist, Stephen Koukoulas. You'll find him thekouk. 3 00:00:14,730 --> 00:00:20,360 Sean Aylmer: com and on Twitter using the handle thekouk. Stephen, good morning. 4 00:00:20,600 --> 00:00:21,780 Stephen Koukoulas: Good morning, Sean. 5 00:00:22,060 --> 00:00:24,180 Sean Aylmer: Now, I know there's not a huge amount coming on 6 00:00:24,180 --> 00:00:27,160 Sean Aylmer: this week, but last week, what a cracker. Those US 7 00:00:27,160 --> 00:00:28,250 Sean Aylmer: inflation numbers. 8 00:00:28,820 --> 00:00:32,070 Stephen Koukoulas: Yes. We had confirmation that the headline inflation rate in 9 00:00:32,070 --> 00:00:34,239 Stephen Koukoulas: the US at seven and a half percent was at 10 00:00:34,240 --> 00:00:37,409 Stephen Koukoulas: a 40 year high. So we've got to go back 11 00:00:37,409 --> 00:00:40,310 Stephen Koukoulas: to the early 1980s, if you can believe it, for 12 00:00:40,310 --> 00:00:42,699 Stephen Koukoulas: the last time we saw inflation in the US this 13 00:00:42,700 --> 00:00:45,090 Stephen Koukoulas: high. But even the core measures, which strips out things 14 00:00:45,090 --> 00:00:48,440 Stephen Koukoulas: like the oil price and petrol prices, was 6% in 15 00:00:49,170 --> 00:00:52,240 Stephen Koukoulas: annual terms, which was the highest in 39 years. Not 16 00:00:52,240 --> 00:00:57,050 Stephen Koukoulas: surprisingly. Look, there's a real inflation issue unfolding in the US, 17 00:00:57,050 --> 00:00:59,360 Stephen Koukoulas: and in fact, around the world. It's linked to the 18 00:00:59,360 --> 00:01:02,400 Stephen Koukoulas: supply chain issues and the fact that the central banks 19 00:01:02,400 --> 00:01:05,450 Stephen Koukoulas: and governments have been pumping so much stimulus into the 20 00:01:05,450 --> 00:01:09,930 Stephen Koukoulas: economy that we consumers are spending, businesses are investing, wages 21 00:01:09,930 --> 00:01:12,750 Stephen Koukoulas: growth's lifting, and with that, inflation's moving higher. 22 00:01:13,010 --> 00:01:15,510 Sean Aylmer: So it means rate rises are on the agenda in 23 00:01:15,510 --> 00:01:17,430 Sean Aylmer: the US, but we knew that. Does it mean that 24 00:01:17,430 --> 00:01:19,810 Sean Aylmer: the increments of rate rises might be higher than we thought? 25 00:01:20,120 --> 00:01:21,910 Stephen Koukoulas: Yeah, there's a fair bit of chatter now, and the way 26 00:01:21,910 --> 00:01:26,400 Stephen Koukoulas: the market pricing went late last week was to factor 27 00:01:26,400 --> 00:01:29,149 Stephen Koukoulas: in the strong probability, if we can call it that, 28 00:01:29,190 --> 00:01:31,520 Stephen Koukoulas: of when the fed meets next in March, that they're 29 00:01:31,520 --> 00:01:33,740 Stephen Koukoulas: going to deliver a 50 point rate hike. So the 30 00:01:33,740 --> 00:01:37,600 Stephen Koukoulas: first one in this tightening cycle will be like a 31 00:01:37,600 --> 00:01:40,690 Stephen Koukoulas: really big, hefty 50 basis point move. And if we 32 00:01:40,690 --> 00:01:43,319 Stephen Koukoulas: look at what the future strip is pricing in for 33 00:01:43,319 --> 00:01:45,619 Stephen Koukoulas: the fed funds rate, the official cash rate if you 34 00:01:45,620 --> 00:01:49,130 Stephen Koukoulas: like in the US, it's now around about two and 35 00:01:49,130 --> 00:01:51,110 Stephen Koukoulas: a quarter, two and a half percent, depending on the 36 00:01:51,110 --> 00:01:55,420 Stephen Koukoulas: rounding, by 2024. So that's a good couple of hundred basis 37 00:01:55,420 --> 00:01:57,530 Stephen Koukoulas: points of rate hikes. And the market, of course, is 38 00:01:57,530 --> 00:02:00,120 Stephen Koukoulas: selling off almost as we speak in anticipation of there 39 00:02:00,120 --> 00:02:00,730 Stephen Koukoulas: being more. 40 00:02:01,130 --> 00:02:03,760 Sean Aylmer: Okay. So with the US, we know exactly what's going 41 00:02:03,760 --> 00:02:06,850 Sean Aylmer: on. Does it matter to Australia if US interest rates 42 00:02:06,860 --> 00:02:07,890 Sean Aylmer: rise that much? 43 00:02:08,460 --> 00:02:12,369 Stephen Koukoulas: In theory, no. We've had plenty of examples over history 44 00:02:12,370 --> 00:02:15,810 Stephen Koukoulas: when the feds hiked and we've cut and different strategies 45 00:02:15,810 --> 00:02:18,520 Stephen Koukoulas: on monetary policy. And that's partly because of our commodity 46 00:02:18,520 --> 00:02:21,489 Stephen Koukoulas: dependence in a sense that when commodity prices have a 47 00:02:21,490 --> 00:02:24,760 Stephen Koukoulas: seismic move up or down it impacts our economy more 48 00:02:24,760 --> 00:02:27,750 Stephen Koukoulas: than the US. So we tend to play our own 49 00:02:27,750 --> 00:02:31,019 Stephen Koukoulas: game, but, and it's a really important but, the issue 50 00:02:31,020 --> 00:02:34,430 Stephen Koukoulas: right now is that global inflation pressures are happening. It's 51 00:02:34,430 --> 00:02:36,049 Stephen Koukoulas: not just the US. You look at the Eurozone, the 52 00:02:36,050 --> 00:02:39,020 Stephen Koukoulas: UK, Canada, even Japan's got a little bit of inflation 53 00:02:39,270 --> 00:02:43,270 Stephen Koukoulas: coming through. And even our recent December quarter CPI number 54 00:02:43,270 --> 00:02:47,000 Stephen Koukoulas: was elevated and that sort of got people excited, I suppose, about 55 00:02:47,000 --> 00:02:49,760 Stephen Koukoulas: how much inflation will pick up in the quarters ahead 56 00:02:49,760 --> 00:02:52,700 Stephen Koukoulas: here in Australia. Look, there's not a one- on- one 57 00:02:52,730 --> 00:02:55,580 Stephen Koukoulas: move in lockstep with the US, but if they're hiking 58 00:02:55,580 --> 00:02:58,060 Stephen Koukoulas: and they're hiking a few hundred basis points, there's no 59 00:02:58,060 --> 00:03:01,290 Stephen Koukoulas: doubt that we will see some of that inflation risk 60 00:03:01,300 --> 00:03:03,959 Stephen Koukoulas: coming into Australia, and yeah, we'll probably have our RBA 61 00:03:04,120 --> 00:03:05,690 Stephen Koukoulas: moving not far behind them. 62 00:03:05,960 --> 00:03:07,639 Sean Aylmer: Well, what I'm finding really interesting at the moment, of 63 00:03:07,639 --> 00:03:09,429 Sean Aylmer: course, we're in the middle of earning season and we 64 00:03:09,430 --> 00:03:13,669 Sean Aylmer: are seeing price pressures coming through on Australian companies, undoubtedly. 65 00:03:14,020 --> 00:03:15,919 Sean Aylmer: There's still this kind of thought that part of it 66 00:03:15,919 --> 00:03:18,210 Sean Aylmer: is transitory. And in fact, I know last week Maersk, 67 00:03:18,810 --> 00:03:23,160 Sean Aylmer: the big shipping container group, released its results overseas in 68 00:03:23,160 --> 00:03:26,060 Sean Aylmer: Europe, and actually said, we think price pressures on shipping 69 00:03:26,060 --> 00:03:29,359 Sean Aylmer: will come out in about June or thereabouts. All these 70 00:03:29,360 --> 00:03:31,900 Sean Aylmer: anecdotes, trying to put it all together to work out 71 00:03:31,900 --> 00:03:34,130 Sean Aylmer: exactly what's going to happen. It's quite fascinating. 72 00:03:35,070 --> 00:03:37,890 Stephen Koukoulas: And it's unusual. Try buying a car in Australia at 73 00:03:37,890 --> 00:03:40,610 Stephen Koukoulas: the moment. There aren't any. Waiting list is six or 74 00:03:40,610 --> 00:03:42,740 Stephen Koukoulas: eight or ten months, and I'm just speaking from personal 75 00:03:42,740 --> 00:03:45,970 Stephen Koukoulas: experience here too. There are none around, and that's why 76 00:03:45,970 --> 00:03:48,380 Stephen Koukoulas: used car prices are more expensive than new ones, which 77 00:03:48,380 --> 00:03:52,180 Stephen Koukoulas: is an extraordinary price change. But, look, there is an 78 00:03:52,180 --> 00:03:55,030 Stephen Koukoulas: element of that supply chain issues and the chips being 79 00:03:55,030 --> 00:03:58,700 Stephen Koukoulas: in real scarcity so people who are using these micro 80 00:03:58,700 --> 00:04:01,010 Stephen Koukoulas: chips in their construction and, of course, that's just about 81 00:04:01,410 --> 00:04:04,670 Stephen Koukoulas: everything nowadays. They don't have any, so that's putting up the 82 00:04:04,670 --> 00:04:07,270 Stephen Koukoulas: selling prices. The thing to remember too, is that it 83 00:04:07,320 --> 00:04:11,510 Stephen Koukoulas: wouldn't be quite the problem if demand wasn't running strong. 84 00:04:11,510 --> 00:04:13,040 Stephen Koukoulas: So if no one wanted to buy a car, the 85 00:04:13,040 --> 00:04:15,670 Stephen Koukoulas: car producers wouldn't be borrowing too much because they wouldn't be 86 00:04:15,670 --> 00:04:18,360 Stephen Koukoulas: selling any. While it is a supply chain issue, there's 87 00:04:18,360 --> 00:04:21,839 Stephen Koukoulas: no doubt there's absolutely an important element in this inflation 88 00:04:21,839 --> 00:04:24,200 Stephen Koukoulas: pressure from the supply side. We've got to remember that 89 00:04:24,200 --> 00:04:25,960 Stephen Koukoulas: demand is still pretty strong, so when you look at 90 00:04:26,400 --> 00:04:30,870 Stephen Koukoulas: the forecast for world GDP in 2022, they're pretty strong. 91 00:04:31,529 --> 00:04:34,919 Stephen Koukoulas: We consumers are spending, investment's happening in the business sector, 92 00:04:34,920 --> 00:04:36,150 Stephen Koukoulas: and the economies looking pretty good. 93 00:04:36,839 --> 00:04:38,340 Sean Aylmer: We're talking about the week ahead, but we're actually about 94 00:04:38,560 --> 00:04:40,930 Sean Aylmer: the year ahead. We've forgotten our whole reason for being 95 00:04:40,930 --> 00:04:44,020 Sean Aylmer: here this morning. Very quickly, the National Australia Bank Business 96 00:04:44,020 --> 00:04:47,620 Sean Aylmer: Confidence and Conditions Survey last week, as well as the 97 00:04:47,620 --> 00:04:51,250 Sean Aylmer: Consumer Confidence Survey, they're both in a bit of a lull but people 98 00:04:51,250 --> 00:04:52,430 Sean Aylmer: are still reasonably upbeat. 99 00:04:52,860 --> 00:04:55,029 Stephen Koukoulas: Yeah. A bit of a lull, and I guess that both 100 00:04:55,029 --> 00:04:59,980 Stephen Koukoulas: surveys probably reflected the Omicron impact on businesses and people's 101 00:04:59,980 --> 00:05:02,950 Stephen Koukoulas: health. People are staying at home in large numbers when 102 00:05:02,950 --> 00:05:06,070 Stephen Koukoulas: the surveys were conducted, so it was not surprising to 103 00:05:06,070 --> 00:05:07,570 Stephen Koukoulas: see a bit of a pullback in both of them, 104 00:05:07,570 --> 00:05:09,990 Stephen Koukoulas: but they're not at bad levels. The fascinating thing, and 105 00:05:09,990 --> 00:05:12,260 Stephen Koukoulas: again, getting back to that inflation story from the NAB 106 00:05:12,260 --> 00:05:16,370 Stephen Koukoulas: survey, they asked businesses about their expected selling prices and 107 00:05:16,370 --> 00:05:20,539 Stephen Koukoulas: their input costs, which by definition's inflation, and they were 108 00:05:20,650 --> 00:05:24,300 Stephen Koukoulas: very elevated. The wages component of the NAB survey was 109 00:05:24,300 --> 00:05:29,430 Stephen Koukoulas: also very elevated. When we see the March quarter inflation 110 00:05:29,430 --> 00:05:31,659 Stephen Koukoulas: and wage numbers in the months ahead, it would be 111 00:05:31,660 --> 00:05:34,450 Stephen Koukoulas: no surprise at all to see us having some very, 112 00:05:34,450 --> 00:05:37,160 Stephen Koukoulas: very big prints on inflation and wages if those NAB 113 00:05:37,160 --> 00:05:38,810 Stephen Koukoulas: numbers are correct. I suspect they will be. 114 00:05:39,010 --> 00:05:42,270 Sean Aylmer: National Australia Bank itself, the bank itself actually said that 115 00:05:42,270 --> 00:05:44,440 Sean Aylmer: it was feeling the pressure from higher wages with its 116 00:05:44,440 --> 00:05:45,310 Sean Aylmer: own staff even. 117 00:05:45,870 --> 00:05:48,700 Stephen Koukoulas: Yes, indeed. And that's just a common thing and the 118 00:05:48,760 --> 00:05:51,970 Stephen Koukoulas: issue that I'm observing and that's coming through in anecdotes 119 00:05:51,970 --> 00:05:54,330 Stephen Koukoulas: as well as some of these other business surveys from 120 00:05:54,330 --> 00:05:56,380 Stephen Koukoulas: the likes of Seek and others who do some really 121 00:05:56,380 --> 00:05:59,169 Stephen Koukoulas: nice stuff on the data that they have on job 122 00:05:59,170 --> 00:06:02,980 Stephen Koukoulas: vacancies, is that wage pressures are really, really building. There's 123 00:06:02,980 --> 00:06:05,510 Stephen Koukoulas: skill shortages across the board and it's not just IT 124 00:06:06,300 --> 00:06:10,120 Stephen Koukoulas: specialists or engineers in the mining fields or those sort 125 00:06:10,120 --> 00:06:13,960 Stephen Koukoulas: of things. It's even people of low skilled in restaurants, 126 00:06:13,960 --> 00:06:16,609 Stephen Koukoulas: the dish pigs or whatever, collecting the dishes and washing 127 00:06:16,610 --> 00:06:19,460 Stephen Koukoulas: them. They just can't find workers and businesses are having 128 00:06:19,460 --> 00:06:22,970 Stephen Koukoulas: to curtail their activities because they can't get someone literally 129 00:06:22,970 --> 00:06:24,670 Stephen Koukoulas: to unlock the door and start the business up. 130 00:06:24,930 --> 00:06:27,160 Sean Aylmer: Yeah. Look just quickly this week, we've got labor force 131 00:06:27,160 --> 00:06:30,560 Sean Aylmer: figures, of course, which are important, although the labor force is so strong. 132 00:06:30,890 --> 00:06:32,310 Sean Aylmer: Nothing's going to surprise us anymore. 133 00:06:32,660 --> 00:06:34,470 Stephen Koukoulas: Well, the funny thing about these ones, and this is 134 00:06:34,470 --> 00:06:37,289 Stephen Koukoulas: after a couple months recall that the November and December 135 00:06:37,300 --> 00:06:41,810 Stephen Koukoulas: numbers, we had plus 330,000 employment, plus 65, the following 136 00:06:41,810 --> 00:06:45,729 Stephen Koukoulas: month, unemployment at 4.2 as we keep hearing loudly and clearly. 137 00:06:46,000 --> 00:06:48,080 Stephen Koukoulas: Now, these numbers are for the month of January. And again, the 138 00:06:48,120 --> 00:06:51,910 Stephen Koukoulas: Omicron event could be having some impact on hours worked 139 00:06:51,910 --> 00:06:55,839 Stephen Koukoulas: and exactly how the Bureau of Stats measures employment. The 140 00:06:55,839 --> 00:06:58,799 Stephen Koukoulas: survey that I've seen's got a range a mile wide 141 00:06:58,800 --> 00:07:01,340 Stephen Koukoulas: in economist forecast. I think that's just to say that 142 00:07:01,960 --> 00:07:04,250 Stephen Koukoulas: we just don't know how people will respond to the 143 00:07:04,250 --> 00:07:07,130 Stephen Koukoulas: survey. Did you work in January? Well, no, I didn't 144 00:07:07,130 --> 00:07:09,820 Stephen Koukoulas: because I was sick at home, so there's a potential 145 00:07:09,820 --> 00:07:12,680 Stephen Koukoulas: for a real outlier again in the numbers. But look, 146 00:07:12,800 --> 00:07:15,740 Stephen Koukoulas: the bottom line is the labor market is strong. There's 147 00:07:15,950 --> 00:07:19,300 Stephen Koukoulas: tightening conditions that employment's good even if we get a 148 00:07:19,300 --> 00:07:21,420 Stephen Koukoulas: bit of a quirky downside later this week. 149 00:07:21,920 --> 00:07:23,970 Sean Aylmer: Steven, thank you for talking to Fear and Greed - The 150 00:07:23,970 --> 00:07:26,230 Sean Aylmer: Week Ahead, and particularly thank you for getting the word 151 00:07:26,310 --> 00:07:28,900 Sean Aylmer: dish pigs into the show. A first! 152 00:07:28,900 --> 00:07:31,440 Stephen Koukoulas: My pleasure, Sean. I'll try to think of a new word every 153 00:07:31,440 --> 00:07:32,930 Stephen Koukoulas: week from here on in, I promise. 154 00:07:33,080 --> 00:07:35,460 Sean Aylmer: Thank you. That was economist Stephen Koukoulas, better known as 155 00:07:35,460 --> 00:07:38,090 Sean Aylmer: the kouk. You can find him at thekouk. com and follow 156 00:07:38,090 --> 00:07:40,790 Sean Aylmer: him on Twitter, using the handle of thekouk. I'm Sean Aylmer. And 157 00:07:40,980 --> 00:07:42,560 Sean Aylmer: this is Fear and Greed - The Week Ahead.