Speaker 1: I'm Nicole Johnston and you're listening to seven AM. It's
Speaker 1: been a brutal week for Australians. Petrol prices and going
Speaker 1: through the roof, and now the Reserve Bank has hyped
Speaker 1: interest rates for the second time this year. Mortgages and
Speaker 1: rents are about to become even more expensive. It was
Speaker 1: a lineball decision from the RBA. Five members voted for
Speaker 1: a quarter of a percentage jump while four voted against it.
Speaker 1: So the official cash raid is now four point one percent.
Speaker 1: But is the increase necessary today? Chief economist at the
Speaker 1: Australia Institute, Greg Jericho on why he thinks the RBA
Speaker 1: has got it wrong. It's Wednesday, March eighteen. Greg. What
Speaker 1: did you think of the RBA Governor Michelle Bullock's reasoning
Speaker 1: increasing the interest rates yet again?
Speaker 2: I think it was pretty poor.
Speaker 3: Actually, higher petrol prices will add to inflation, but they're
Speaker 3: not the reason for today's decision. Inflation was already too high,
Speaker 3: reflecting the fact that demand is outstripping supply. Higher fuel
Speaker 3: costs will not slow demand enough on their own to
Speaker 3: address this.
Speaker 2: I think it really demonstrated a disconnect with what's going
Speaker 2: on in the economy. Not just in Australia but the
Speaker 2: rest of the world. This real sense that inflation is
Speaker 2: somehow running hot, whereas what we're seeing is, yes, it's
Speaker 2: higher than we'd like, but it's certainly not accelerating, not
Speaker 2: going up. You know, they showed that actually in the
Speaker 2: end of last year, consumption, household consumption spending was a
Speaker 2: bit below what that expect. That didn't suggest that we're
Speaker 2: out there all spending madly. Unit labor costs, which is
Speaker 2: sort of the cost of labor was act down in
Speaker 2: real terms, so it's not rising fast than inflation. So
Speaker 2: that suggests that businesses aren't really struggling to get workers,
Speaker 2: so they're having to raise wages and everything to trying
Speaker 2: to track them. Wage growth itself is steady, inflation itself
Speaker 2: is steady. All they were able to really point to was, oh,
Speaker 2: business investment was up, and it's like, well, there was
Speaker 2: a sort of a big investment in batteries for renewable
Speaker 2: and data centers, and it's like, really, that's what we're
Speaker 2: saying has caused excess demand and increasing inflationary pressures in Australia.
Speaker 2: I thought, come on, So I thought that was pretty
Speaker 2: poorly argued. And also her suggestion and the board suggestion
Speaker 2: that the oil price rises coming out of the war
Speaker 2: with Iran are raising petrol prices and are going to
Speaker 2: raise inflation over the coming months, so they needed to
Speaker 2: get on and do something about it. Now, again, I
Speaker 2: think was a pretty poor decision, given we know all
Speaker 2: of those impacts are due to this massive supply shock
Speaker 2: of the Iran war. There's nothing the Reserve Bank can
Speaker 2: do about that. Raising the cash rate of four point
Speaker 2: one percent isn't going to open up the straight up
Speaker 2: on OZ and all it did was double the pain
Speaker 2: for people who are already having to pay more for petrol,
Speaker 2: which is something you can't really do without. So no,
Speaker 2: wasn't overly impressed with her reasoning or the decision.
Speaker 3: This hit with the fuel prices and this additional rise
Speaker 3: in mortgage rates is going to be hard for some people.
Speaker 3: I do understand that, but it'll be much worse if
Speaker 3: inflation gets built into the fibers and then we will
Speaker 3: see the cost of everything going up.
Speaker 1: So why do you think they went for this tool
Speaker 1: at the end of the day, Because they clearly think
Speaker 1: they're doing something to help the economy.
Speaker 2: Well, as people often say about the Reserve Bank. When
Speaker 2: all you've got is a hammer, everything looks like a
Speaker 2: nail and the only tool they really have interest rates.
Speaker 2: And so if inflation is higher than they'd like, they
Speaker 2: think they must raise interest rates. You know, it seemed
Speaker 2: like the RBA was just determined to raise rates, that
Speaker 2: they really want to show that, oh, we're big and
Speaker 2: tough and we're acting against inflation. And to me, it
Speaker 2: feels a bit like they are very sensitive to the
Speaker 2: criticism from some that back in twenty twenty two they
Speaker 2: didn't raise rates fast enough, that they shouldn't have waited
Speaker 2: till May of twenty twenty two when they did raise rates,
Speaker 2: and so that they're kind of reacting to that, Whereas
Speaker 2: I think most economists, really, if you were to sort
Speaker 2: of hold a gun to their head, would say, yeah,
Speaker 2: it feels like there's a few things happening that are
Speaker 2: creating a lot of uncertainty At the moment. We don't
Speaker 2: know what petrol prices are going to do. We don't
Speaker 2: know the impact that's going to have on house sold spending,
Speaker 2: the economy over the next few weeks. It seems like
Speaker 2: this war is going to keep going on. Why don't
Speaker 2: we wait six weeks and see what the situation is
Speaker 2: in May.
Speaker 4: This is obviously not the decision that lots of Australians
Speaker 4: were hoping for. It's not a surprising decision, but that
Speaker 4: doesn't make it any easier for millions of Australians.
Speaker 3: With a mortgage.
Speaker 1: So, Greg, how is all of this really going to
Speaker 1: hit people, especially especially given that people were finally getting
Speaker 1: a break from these interest rate rises after two years
Speaker 1: of solid increases that we had after COVID.
Speaker 2: Yeah, I mean, this is the thing that the Reserve
Speaker 2: Bank is really pointing to the end of last year saying,
Speaker 2: oh things were you know, looking up or that's where
Speaker 2: all the sort of excess demand, as they say, was,
Speaker 2: well that was before they raised rates in February, and
Speaker 2: that really, I think came as a shock to people.
Speaker 2: People who, unlike me, don't spend every day looking at
Speaker 2: what the Reserve Bank is saying. They would have been thinking, oh,
Speaker 2: hang on, I thought I thought we would finish with
Speaker 2: this and then to get another one on top of
Speaker 2: that is a real kind of smack in the face.
Speaker 2: And coupled with the increase in petrol prices which has
Speaker 2: been quite stunning of late, you know, we're really seeing,
Speaker 2: you know, thirty cents and Leader forty cents and Leader
Speaker 2: kind of increases, sort of going from a dollar eighty
Speaker 2: to two twenty and above, and the sense that this
Speaker 2: is going to be around for a while. It's this
Speaker 2: sense of oh great, I've been smashed both ways through
Speaker 2: nothing that any workers have done. It's not because workers
Speaker 2: have all been getting great pay rises. It's not because
Speaker 2: we've we've got these massive big tax cuts, or the
Speaker 2: government's handed out heaps of money to us somehow and
Speaker 2: we're all spending it madly. It's just, you know, we
Speaker 2: were just carrying on and then suddenly the Reserve bankers decide, oh,
Speaker 2: hang on, we really would like a few more of
Speaker 2: you to be unemployed. And really that's what it comes
Speaker 2: down to. So it really is this worrying thing for
Speaker 2: me that the Reserve Bank remains utterly wedded to this
Speaker 2: view that there needs to be higher unemployment. They would
Speaker 2: love unemployment to be around four and a half percent,
Speaker 2: if not a little bit higher, just to be safe.
Speaker 2: They have shown a complete unwillingness to be able to
Speaker 2: cope with unemployment around four percent or even lower. It's
Speaker 2: a pretty sad state of affairs, and especially in a
Speaker 2: period of such a massive uncertainty, because we've got mad
Speaker 2: men in the White House, no idea what the heck's
Speaker 2: going to be happening with Iran, and to be suggesting
Speaker 2: that we shouldn't have at least waited six weeks to
Speaker 2: find out, to me, seems a pretty poor judgment on
Speaker 2: the Reserve Bank's.
Speaker 1: Behalf coming up. What's the chance of a recession? Greg?
Speaker 1: We are seeing these huge increases in oil, gas, fertilizer
Speaker 1: prices that could start flowing through to the rest of
Speaker 1: the economy, especially our food prices. So how bad do
Speaker 1: you think that inflation could get from here?
Speaker 2: Well, one of the problems is that actually the costs
Speaker 2: of things like fertilizer and even fuel costs are fairly
Speaker 2: overstated by most people, and we see this in the
Speaker 2: media all the time. The real worry is that we're
Speaker 2: going to see like we saw in twenty twenty two,
Speaker 2: where off the back of the Russian invasion of Ukraine,
Speaker 2: where we saw massive spikes in prices and again of
Speaker 2: things like fertilizer. The companies looked around and saw all
Speaker 2: these talk about inflation and going, well, we can raise
Speaker 2: prices and everyone will just think, oh, well, that's inflation,
Speaker 2: you know, and by and large it won't be. It'll
Speaker 2: be just they've seen an opportunity to raise prices, and
Speaker 2: that's we already were starting to see some of that
Speaker 2: at the end of last year. What we were seeing
Speaker 2: at the end of last year that was causing the
Speaker 2: bit of the jump in inflation that we saw was
Speaker 2: an increase in profit margins. So that's my worry. I
Speaker 2: don't think we're going to see massive spikes, but certainly
Speaker 2: this kind of increase in oil prices going to lead
Speaker 2: to inflation increase. But again it's a case of is
Speaker 2: that an inflation that the Reserve Bank can do anything about.
Speaker 2: They can't lower the price of oil, they can't lower
Speaker 2: the price well priced of gas, even a fertilizer. What
Speaker 2: we could do, given we're one of the biggest exporters
Speaker 2: of LNG in the world, is we could be looking
Speaker 2: at taxing our gas exports. Who are going to be
Speaker 2: making an absolute motza because one thing people might have
Speaker 2: realized over the past couple of weeks is that when
Speaker 2: they're watching the news or hearing about things, is oh,
Speaker 2: the share prices taken a hit, you know, the stock
Speaker 2: market's gone down. Well, I can tell you two companies
Speaker 2: whose prices on the stock may have not gone down
Speaker 2: are Santos and Woodside. Why because massive gas exporters, and
Speaker 2: everyone knows they're going to make a motza out of this.
Speaker 2: So you know, if we were taxing gas like we
Speaker 2: should be, we might actually be seeing stories about how
Speaker 2: actually this war, the increase in all prices is going
Speaker 2: to lead to a big increase in tax revenue which
Speaker 2: the government could use to actually help us out. And
Speaker 2: instead it's all just going to go to profits for companies,
Speaker 2: and most of those profits are going overseas.
Speaker 1: So Greg given this decision and the statement from the
Speaker 1: Reserve Bank, do you think that we should all be
Speaker 1: preparing possibly for even more interest rate increases in the future.
Speaker 2: Yeah, Unfortunately, I think another one is more likely than not,
Speaker 2: whether it comes in May or it comes later. They
Speaker 2: might decide, given they've done two in a road, that
Speaker 2: it's time to step back and wait, especially because the
Speaker 2: next meeting comes the week before the budget, so they
Speaker 2: might decide let's wait and see what comes out in
Speaker 2: the budget. But again, all of this just puts pressure
Speaker 2: on the government now to cut back on spending because
Speaker 2: it doesn't want to be seen to fueling inflation. And
Speaker 2: it's like, well, is inflation being fueled by excess demand
Speaker 2: or is it being fueled by war in Iran? Is
Speaker 2: it been fueled by increased profits? And if that's the case,
Speaker 2: then you know the Reserve Bank needs to look elsewhere
Speaker 2: to find some blame rather than you and me and
Speaker 2: everyone else who either has a mortgage or would like
Speaker 2: to have a mortgage. And unfortunately, it seems that they
Speaker 2: really like raising interest rates, they really like looking tough
Speaker 2: on inflation, regardless of the causes, and so that has
Speaker 2: me worried that there probably is at least one more,
Speaker 2: if not two, still to come.
Speaker 1: And Greg, finally we heard the RBA governor mentioned the
Speaker 1: dreaded word recession.
Speaker 3: We don't want to see a recession or a large
Speaker 3: rise in unemployment if we can avoid it. That's part
Speaker 3: of our dual mandates.
Speaker 1: So could the impact of the wall be so serious?
Speaker 1: Do you think that it leads to a recession in
Speaker 1: Australia or even globally.
Speaker 2: Yeah, she was pretty, in my view, fairly cavalier about that.
Speaker 3: We don't want to have a recession, but if it's
Speaker 3: hard to get inflation down, then you know we're going
Speaker 3: to have to deal with that.
Speaker 2: It's like, we do not need a recession to get
Speaker 2: inflation blow three percent. My god, inflation's at three point
Speaker 2: eight percent. That's not out of control. It's a bit
Speaker 2: higher than their target. Anyone thinking that we need the
Speaker 2: economy to slow down so that we can win the
Speaker 2: war on inflation is quite deluded, And I would also suggest,
Speaker 2: in a very secure and well paying job, I really
Speaker 2: have no truck with economists who think that higher unemployment
Speaker 2: is a nice and easy payoff for lower inflation. And
Speaker 2: recessions are horrific things. The Reserve Bank should be doing
Speaker 2: all it can to avoid one not thinking, oh, well,
Speaker 2: if that's the price we have to get of getting
Speaker 2: inflation under three percent, then that's the price we have
Speaker 2: to pay. That's just a terrible mindset, and I really
Speaker 2: hope it doesn't come to that. But again, that's why
Speaker 2: I would have held off in raising rates this time
Speaker 2: and waited six weeks to find out what's going on.
Speaker 2: How is this impacting the global economy, because to be honest,
Speaker 2: no one knows. There's no certainty with Donald Trump, and
Speaker 2: yet the Reserve Bank is acting like.
Speaker 1: There is help, Greg, Thanks for joining us.
Speaker 2: No problems, great to chat help.
Speaker 1: Also in the news, the a Triple C has put
Speaker 1: fuel companies on notice, warning them against misleading and anti
Speaker 1: competitive conduct. The watchdog says it will closely monitor the
Speaker 1: fuel market for price gouging during the war in the
Speaker 1: Middle East. Major fuel companies, wholesalers and retailers have been
Speaker 1: asked to explain recent price hikes, which often moved more
Speaker 1: quickly than expected after the worldwide increase in oil prices
Speaker 1: and to possible Category three cyclone is making its way
Speaker 1: towards Queensland. Meteorologists a warning it could deliver winds of
Speaker 1: up to one hundred and fifty five kilometers an hour.
Speaker 1: It's expected to hit far north Queensland between Lockhart River
Speaker 1: and Port Douglas on Thursday. There's also a warning for
Speaker 1: heavy rain and flash flooding. I'm Nicole Johnston. This is
Speaker 1: seven am. Thanks for listening.