1 00:00:05,790 --> 00:00:08,729 Adam Lang: Welcome to the Fear & Greed Business Interview. I'm Adam Lang. 2 00:00:09,179 --> 00:00:12,300 Adam Lang: Last week, the Reserve Bank Board removed its bias towards 3 00:00:12,300 --> 00:00:16,230 Adam Lang: increasing interest rates. Then we had a shock low unemployment 4 00:00:16,230 --> 00:00:20,009 Adam Lang: number suggesting that yes, rates will come down, but maybe 5 00:00:20,009 --> 00:00:22,950 Adam Lang: not as soon as everyone thought. So yesterday's release of 6 00:00:22,950 --> 00:00:26,069 Adam Lang: monthly inflation data is a very important piece of the 7 00:00:26,070 --> 00:00:28,349 Adam Lang: puzzle, though I don't know if it's made the reserve 8 00:00:28,349 --> 00:00:32,608 Adam Lang: bank job any easier. Diana Mousina is AMP's Deputy Chief 9 00:00:32,610 --> 00:00:35,099 Adam Lang: Economist. Diana, welcome back to Fear & Greed. 10 00:00:35,550 --> 00:00:36,870 Diana Mousina: Thank you, Adam. Nice to chat. 11 00:00:37,409 --> 00:00:40,680 Adam Lang: Headline CPI came in at an annual rate of 3. 12 00:00:41,070 --> 00:00:44,250 Adam Lang: 4% in February. Was this better than you expected? 13 00:00:45,150 --> 00:00:48,449 Diana Mousina: It was, and I was pleasantly surprised When we did 14 00:00:48,450 --> 00:00:52,080 Diana Mousina: our bottom up forecast, ours was showing something more of 3. 15 00:00:52,320 --> 00:00:56,280 Diana Mousina: 7%. Usually you get a big increase in education prices 16 00:00:56,280 --> 00:00:59,040 Diana Mousina: in February and also fuel went up over the month 17 00:00:59,040 --> 00:01:02,639 Diana Mousina: as well. So that contributed to our higher forecasts. What 18 00:01:02,639 --> 00:01:06,090 Diana Mousina: I thought was interesting about February is that the ABS 19 00:01:06,090 --> 00:01:09,150 Diana Mousina: surveys obviously every single month in the quarter, but as 20 00:01:09,150 --> 00:01:13,830 Diana Mousina: we know, the monthly CPI data is not completely as fulsome 21 00:01:13,830 --> 00:01:16,919 Diana Mousina: as the quarterly data because not everything is surveyed every 22 00:01:16,920 --> 00:01:18,510 Diana Mousina: month. But in the month of February, which is the 23 00:01:18,510 --> 00:01:22,349 Diana Mousina: second month of that quarter, you actually get the most 24 00:01:22,349 --> 00:01:25,440 Diana Mousina: number of categories surveyed. And in particular, there are a 25 00:01:25,440 --> 00:01:29,399 Diana Mousina: lot of services that are surveyed and services has been one 26 00:01:29,400 --> 00:01:31,200 Diana Mousina: of the key areas that's been of concern for the 27 00:01:31,200 --> 00:01:33,780 Diana Mousina: Reserve Bank. Of course, they're worried that services inflation's going 28 00:01:33,780 --> 00:01:37,650 Diana Mousina: to remain sticky. So the downside surprise was pleasant, both 29 00:01:37,650 --> 00:01:40,020 Diana Mousina: from the point of view that inflation is obviously still 30 00:01:40,020 --> 00:01:44,159 Diana Mousina: trending lower and below the RBAs forecast, but also from 31 00:01:44,160 --> 00:01:47,400 Diana Mousina: the point of view that services inflation is continuing to 32 00:01:47,400 --> 00:01:48,269 Diana Mousina: slow as well. 33 00:01:48,990 --> 00:01:52,320 Adam Lang: Have you been surprised by how goods inflation has changed? 34 00:01:52,980 --> 00:01:55,620 Diana Mousina: Well, we have a lot of forward- looking indicators of goods 35 00:01:55,620 --> 00:02:00,450 Diana Mousina: inflation that we use for our global inflation forecast. So 36 00:02:00,450 --> 00:02:04,320 Diana Mousina: we look at global commodity prices, semiconductor prices, shipping costs, 37 00:02:04,320 --> 00:02:08,639 Diana Mousina: container costs, the Baltic dry index, Chinese produce a price 38 00:02:08,639 --> 00:02:11,250 Diana Mousina: index, and we've been seeing this pattern in the past 39 00:02:11,250 --> 00:02:14,820 Diana Mousina: few months where goods prices haven't really been slowing much 40 00:02:14,849 --> 00:02:18,870 Diana Mousina: further. They've kind of bottomed and they've obviously slowed from 41 00:02:18,870 --> 00:02:22,859 Diana Mousina: their highs in 2021 and 2022, but they're not really 42 00:02:22,859 --> 00:02:26,610 Diana Mousina: coming down too much further. And I think that the pace of 43 00:02:26,610 --> 00:02:30,000 Diana Mousina: growth in goods inflation is still relatively in line with 44 00:02:30,000 --> 00:02:33,570 Diana Mousina: inflation targets, but only if you get services declining as well. 45 00:02:34,679 --> 00:02:37,919 Adam Lang: Okay. So if you can look forward, and I guess 46 00:02:37,919 --> 00:02:40,529 Adam Lang: what you're seeing in that data, but what you anticipate 47 00:02:40,529 --> 00:02:44,160 Adam Lang: might happen across goods inflation and services inflation, what should 48 00:02:44,160 --> 00:02:45,240 Adam Lang: we be looking out for? 49 00:02:45,810 --> 00:02:48,600 Diana Mousina: Well, from a services point of view for Australia, there 50 00:02:48,600 --> 00:02:50,190 Diana Mousina: are a few things that are key. So one is 51 00:02:50,190 --> 00:02:54,929 Diana Mousina: what happens to rents? Rents have the highest share of 52 00:02:55,290 --> 00:02:59,400 Diana Mousina: services inflation from the services' basket point of view. I 53 00:02:59,400 --> 00:03:00,990 Diana Mousina: think in the near term, rents are still going to 54 00:03:01,050 --> 00:03:04,019 Diana Mousina: remain quite high. We still have a lot of permanent 55 00:03:04,020 --> 00:03:07,980 Diana Mousina: migration and long- term migration into Australia, despite the fact 56 00:03:07,980 --> 00:03:10,020 Diana Mousina: that the government has been saying that they're tightening on 57 00:03:10,020 --> 00:03:14,160 Diana Mousina: visa conditions and restrictions. Early numbers from this year still 58 00:03:14,160 --> 00:03:18,119 Diana Mousina: say that immigration's running at about 550,000 people over the 59 00:03:18,119 --> 00:03:20,490 Diana Mousina: year. So in the short term, rents are still probably 60 00:03:20,490 --> 00:03:23,580 Diana Mousina: going to remain quite elevated. The good news though is 61 00:03:23,580 --> 00:03:28,230 Diana Mousina: that we're seeing quite significant weakening in prices for accommodation 62 00:03:28,230 --> 00:03:31,289 Diana Mousina: and travel and holidays. And that was one of actually 63 00:03:31,290 --> 00:03:35,850 Diana Mousina: the biggest services area that increased inflation for services price 64 00:03:35,850 --> 00:03:37,530 Diana Mousina: in the past two years. And one that the reserve 65 00:03:37,530 --> 00:03:39,810 Diana Mousina: bank's been talking about. That's good news. And also I'm 66 00:03:39,810 --> 00:03:43,740 Diana Mousina: watching wages growth. Wages growth is really the key component 67 00:03:43,740 --> 00:03:45,989 Diana Mousina: of what happens to services prices. When you think about 68 00:03:45,990 --> 00:03:48,689 Diana Mousina: what really drives services inflation, a lot of it comes 69 00:03:48,690 --> 00:03:51,029 Diana Mousina: down to the cost of labor. So we do need 70 00:03:51,030 --> 00:03:53,820 Diana Mousina: to see the pace of wages growth slow. It probably 71 00:03:53,820 --> 00:03:57,180 Diana Mousina: needs to be somewhere at 3 to 3. 5% on an annual 72 00:03:57,180 --> 00:04:00,540 Diana Mousina: basis for the Reserve Bank to be comfortable that inflation's 73 00:04:00,540 --> 00:04:02,070 Diana Mousina: going to be within its target band. 74 00:04:02,880 --> 00:04:04,860 Adam Lang: Stay with me, Diana, we'll be back in a minute. 75 00:04:11,789 --> 00:04:16,080 Adam Lang: I'm speaking to AMP Deputy Chief Economist, Diana Mousina. If 76 00:04:16,080 --> 00:04:19,110 Adam Lang: we turn our attention to unemployment, how much has last 77 00:04:19,110 --> 00:04:22,199 Adam Lang: week's unemployment number thrown a spanner in the works? 78 00:04:22,980 --> 00:04:25,349 Diana Mousina: Well, if you believe it, I mean, I'm not sure 79 00:04:25,650 --> 00:04:29,430 Diana Mousina: that I do really. I think that the seasonal factors 80 00:04:29,430 --> 00:04:32,970 Diana Mousina: going on at the ABS, I don't know what's going 81 00:04:32,970 --> 00:04:35,940 Diana Mousina: on with the seasonal factors and also with the questions 82 00:04:35,940 --> 00:04:39,268 Diana Mousina: around how the ABS is asking questions about people that 83 00:04:39,270 --> 00:04:41,159 Diana Mousina: are unemployed. I just find it hard to believe that 84 00:04:41,160 --> 00:04:43,799 Diana Mousina: if people have a job to go to, that there 85 00:04:43,799 --> 00:04:46,289 Diana Mousina: would be technically classified as being unemployed. I'm not really 86 00:04:46,289 --> 00:04:50,190 Diana Mousina: sure I understand what's actually going on behind some of 87 00:04:50,190 --> 00:04:52,800 Diana Mousina: these questions that are being asked. So I don't really 88 00:04:52,800 --> 00:04:55,020 Diana Mousina: know where the unemployment rate is at the moment. When 89 00:04:55,020 --> 00:04:57,570 Diana Mousina: I look at all the forward- looking indicators of employment 90 00:04:57,570 --> 00:05:01,138 Diana Mousina: growth, they're all showing much weaker employment conditions to me 91 00:05:01,139 --> 00:05:04,379 Diana Mousina: than the official ABS data is. So I kind of 92 00:05:04,379 --> 00:05:06,479 Diana Mousina: have to look at both of those things. I think that the 93 00:05:06,480 --> 00:05:09,360 Diana Mousina: labor market is still clearly holding up better than expected, 94 00:05:09,630 --> 00:05:11,460 Diana Mousina: but I do think we will start to see some 95 00:05:11,460 --> 00:05:14,010 Diana Mousina: of that weakening come through and maybe that one- off 96 00:05:14,040 --> 00:05:16,650 Diana Mousina: decline in the unemployment rate will be reversed in the 97 00:05:16,650 --> 00:05:17,369 Diana Mousina: coming months. 98 00:05:17,849 --> 00:05:21,059 Adam Lang: So speaking of those employment numbers, the SEEK job ads 99 00:05:21,059 --> 00:05:23,579 Adam Lang: numbers that came out showing a reduction in the number 100 00:05:23,580 --> 00:05:25,378 Adam Lang: of job ads, how are you seeing that? 101 00:05:26,190 --> 00:05:29,370 Diana Mousina: Well, SEEK is not the only provider that gives indications 102 00:05:29,370 --> 00:05:32,940 Diana Mousina: of job vacancies and job ads, there are a whole 103 00:05:32,940 --> 00:05:36,779 Diana Mousina: raft of them and they're all pointing to awakening in 104 00:05:36,779 --> 00:05:40,589 Diana Mousina: job openings, job vacancies and hiring intentions that businesses have 105 00:05:40,859 --> 00:05:42,900 Diana Mousina: and SEEK, even have an index about the number of 106 00:05:42,900 --> 00:05:46,110 Diana Mousina: job applicants per job and the number of job applicants 107 00:05:46,110 --> 00:05:49,440 Diana Mousina: per job has gone down, which normally tends to indicate 108 00:05:49,440 --> 00:05:51,389 Diana Mousina: some rise in the unemployment rate. So those are the 109 00:05:51,389 --> 00:05:54,659 Diana Mousina: types of forward- looking indicators that I look at when 110 00:05:54,660 --> 00:05:57,479 Diana Mousina: I'm thinking about the prospect for employment growth the next 111 00:05:57,480 --> 00:05:58,050 Diana Mousina: few months. 112 00:05:58,770 --> 00:06:01,380 Adam Lang: And when you consider all of this data and even some of 113 00:06:01,380 --> 00:06:03,300 Adam Lang: the things that perhaps we haven't spoken about today, what 114 00:06:03,300 --> 00:06:05,760 Adam Lang: are you feeling and what does this mean for interest rates? 115 00:06:06,630 --> 00:06:08,880 Diana Mousina: Well, our base case has been that we would see 116 00:06:08,880 --> 00:06:12,360 Diana Mousina: the start of a rate cutting cycle in June. And 117 00:06:12,570 --> 00:06:14,309 Diana Mousina: while I think that we are going to be right 118 00:06:14,309 --> 00:06:17,310 Diana Mousina: on our view about inflation, so that inflation's coming down 119 00:06:17,580 --> 00:06:20,880 Diana Mousina: in line with our medium term forecast slower than the 120 00:06:20,880 --> 00:06:24,779 Diana Mousina: RBA's expectations. So I think the inflation environment will provide 121 00:06:24,779 --> 00:06:27,388 Diana Mousina: the reserve bank room to cut interest rates if they 122 00:06:27,599 --> 00:06:30,660 Diana Mousina: want to or feel the need to. But I'm not 123 00:06:30,660 --> 00:06:33,178 Diana Mousina: convinced that the growth outlook is going to slow enough 124 00:06:33,240 --> 00:06:36,450 Diana Mousina: by June to warrant a rate cut. And what we 125 00:06:36,450 --> 00:06:39,330 Diana Mousina: really need to see for a rate cut to occur 126 00:06:39,330 --> 00:06:41,700 Diana Mousina: is awakening in the labor market, I think, if the 127 00:06:41,700 --> 00:06:45,599 Diana Mousina: unemployment rate stays 3. 7 or 3. 8% like it 128 00:06:45,599 --> 00:06:48,210 Diana Mousina: did in the February data, I think that that's probably 129 00:06:48,210 --> 00:06:50,549 Diana Mousina: too low for the Reserve bank to consider cutting interest 130 00:06:50,549 --> 00:06:54,689 Diana Mousina: rates, even if inflation warrants them to do so. So 131 00:06:54,930 --> 00:06:58,830 Diana Mousina: our base case is still for a June start to 132 00:06:58,920 --> 00:07:00,839 Diana Mousina: rate cuts, but I have to say that the risk 133 00:07:00,839 --> 00:07:03,240 Diana Mousina: of that is probably around August or September, which is 134 00:07:03,240 --> 00:07:05,010 Diana Mousina: more in line with market pricing at the moment. 135 00:07:05,670 --> 00:07:09,540 Adam Lang: That is great perspective. Retail sales are due out today. And 136 00:07:09,809 --> 00:07:10,980 Adam Lang: what are you expecting to see? 137 00:07:11,820 --> 00:07:14,490 Diana Mousina: I think we will get a strong bounce in retail 138 00:07:14,490 --> 00:07:18,660 Diana Mousina: spending. The banks publish their credit card data on a 139 00:07:18,660 --> 00:07:21,509 Diana Mousina: monthly basis, and that actually increased quite a lot for 140 00:07:21,510 --> 00:07:24,389 Diana Mousina: the month of February. I think that Taylor Swift probably did 141 00:07:24,389 --> 00:07:26,910 Diana Mousina: have some impact on that, although I was interested to see 142 00:07:27,120 --> 00:07:30,660 Diana Mousina: that in the monthly CPI data. The ABS actually mentioned 143 00:07:30,660 --> 00:07:32,640 Diana Mousina: that despite the fact that hotel prices went up in 144 00:07:32,640 --> 00:07:35,670 Diana Mousina: Sydney, in Melbourne over February due to Taylor Swift, there 145 00:07:35,670 --> 00:07:39,029 Diana Mousina: were offsets from other capital cities. So maybe the impact 146 00:07:39,030 --> 00:07:42,029 Diana Mousina: won't be as strong as we're expecting. But the bank 147 00:07:42,030 --> 00:07:44,849 Diana Mousina: credit card data was certainly strong for February, but even 148 00:07:44,849 --> 00:07:47,129 Diana Mousina: if we get a bounce over the month of Feb, I 149 00:07:47,129 --> 00:07:49,080 Diana Mousina: think we need to still look at things on a three- 150 00:07:49,080 --> 00:07:51,270 Diana Mousina: month basis because again, we've had a lot of seasonal 151 00:07:51,270 --> 00:07:54,120 Diana Mousina: factors going on with the retail spending data, and that 152 00:07:54,120 --> 00:07:56,999 Diana Mousina: should still show that monthly retail sales is averaging at .2 or . 153 00:07:57,780 --> 00:08:00,960 Diana Mousina: 3% over the month. That's not really that high. And 154 00:08:00,960 --> 00:08:04,199 Diana Mousina: in annual terms, retail volumes are still negative and per 155 00:08:04,199 --> 00:08:07,320 Diana Mousina: person retail spending is negative as well. So I still 156 00:08:07,320 --> 00:08:09,750 Diana Mousina: say that the retail sector is in a pretty weak 157 00:08:09,750 --> 00:08:13,500 Diana Mousina: spot and consumers have cut right back on retail consumption, 158 00:08:13,650 --> 00:08:15,420 Diana Mousina: focusing more on that essential spending. 159 00:08:15,929 --> 00:08:18,570 Adam Lang: That is terrific. Diana, thank you so much for talking 160 00:08:18,570 --> 00:08:19,260 Adam Lang: to Fear & Greed. 161 00:08:19,469 --> 00:08:20,129 Diana Mousina: Thanks so much. 162 00:08:20,490 --> 00:08:24,328 Adam Lang: That was Diana Mousina, Deputy Chief Economist at AMP. This 163 00:08:24,329 --> 00:08:26,970 Adam Lang: is the Fear & Greed business interview. Join us every morning 164 00:08:26,970 --> 00:08:29,760 Adam Lang: for the full episode of Fear & Greed Daily Business News 165 00:08:29,760 --> 00:08:32,550 Adam Lang: for people who make their own decisions. I'm Adam Lang. 166 00:08:32,639 --> 00:08:33,450 Adam Lang: Enjoy your day.