Speaker 1: Welcome to the Friends with Money podcast, brought to you
Speaker 1: by Money Magazine, creating financial freedom for Australians since nineteen
Speaker 1: ninety nine.
Speaker 2: Welcome to Friends with Money. I'm your host, Michelle Baltazar.
Speaker 2: Thanks for joining us for this bonus podcast. We have
Speaker 2: our guest Ivan Cohun, chief economist at creditor Watch, to
Speaker 2: talk about the latest consumer price index data out this week,
Speaker 2: what they are and how they might affect the rate
Speaker 2: decision of the Reserve Bank due next month. Ivan, thanks
Speaker 2: for joining us.
Speaker 3: Thanks Michelle, thanks for having me along.
Speaker 2: Now let's start with the basics. What is the Consumer
Speaker 2: Price Index or CPI and has it changed much since
Speaker 2: the onset of COVID nineteen Yes, I guess it.
Speaker 3: It's most basic. It's a basket of prices of goods
Speaker 3: and services that the typical consumer purchases to think. We
Speaker 3: hear a lot about the cost of living. It's effectively
Speaker 3: a statistical measure of the cost of living. It has
Speaker 3: changed a lot since the start of COVID. If you
Speaker 3: went back the five years before COVID, the cost of
Speaker 3: living probably went up about two percent a year, low
Speaker 3: enough that really not many people notice the changing prices.
Speaker 3: But Beginning in late twenty twenty one, the cost of
Speaker 3: living really ramped up, and over that period since it's
Speaker 3: gone up over twenty percent. So we all know when
Speaker 3: we go shopping, when we pay electricity bills, they're much
Speaker 3: much higher.
Speaker 2: We are definitely feeling it in our pockets and bank balances.
Speaker 2: So now it's fast forward to twenty twenty five and
Speaker 2: the CPI data just came out this week. What are
Speaker 2: the numbers and what do they mean?
Speaker 3: Well, what we saw to d is the annual rate
Speaker 3: of inflation or CPI dropped to two point one percent.
Speaker 3: That's the lowest sense before COVID. The more important policy rate,
Speaker 3: which is related to the underlying inflation, dropped from to
Speaker 3: two point four percent. Now the RBA tries to target
Speaker 3: that rate at two point five percent, So it really
Speaker 3: means that inflation has moderated back to the target the
Speaker 3: Reserve Bank wants, and that means that they can consider
Speaker 3: reducing interest rates further at the next board meeting.
Speaker 2: That's just sweet music to my ears. Cutting interest rate.
Speaker 2: So we did have a rate cut this year, and
Speaker 2: now there's another rate announcement next month. Do you think
Speaker 2: this means that there will be another rate cut.
Speaker 3: I think it does mean that there will be another
Speaker 3: interest rate cut. The reason is if you look at
Speaker 3: the four cut US the Reserve Bank put in place
Speaker 3: released in May, they actually forecast unemployment rising, they forecast
Speaker 3: slow growth, and they assumed another two interest rate cuts.
Speaker 3: If they don't make those intrast rate cuts, they would
Speaker 3: actually be predicting that unemployment would be even higher. So
Speaker 3: they don't need to allow unemployment to rise when inflation
Speaker 3: is low.
Speaker 2: So what is the cache rate right now and what
Speaker 2: is the consensus forecast on where it might sit by
Speaker 2: the end of the year or next next month.
Speaker 3: Yeah, so it's currently three point eighty five percent. The
Speaker 3: expectation in the markets is pretty highly priced, not one
Speaker 3: hundred percent price that it will be reduced another zero
Speaker 3: point two five of a percent in July net Board
Speaker 3: meeting on the eighth of July, and then another point
Speaker 3: twenty five in August. So in the next couple of
Speaker 3: months it's expected to drop to three point three five percent,
Speaker 3: and then the markets are looking for another half of
Speaker 3: percent off by early next year. So that's that's the expectation.
Speaker 3: It doesn't have to it may not be correct, but
Speaker 3: that's what markets expect to happen over the next couple
Speaker 3: of months and then over the next six to six
Speaker 3: to eight months.
Speaker 2: Ivan, I'm crossing my fingers for that first of three
Speaker 2: or four red cuts next month. Thanks for sharing your
Speaker 2: insights with us.
Speaker 3: Thanks Michelle, thank.
Speaker 2: You for listening to this bonus episode. Until next I'm
Speaker 2: Michelle Baltasar Bye for now.
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