WEBVTT - Is the RBA fighting the wrong inflation problem? 0:00:01.410 --> 0:00:10.150 I'm Ruby Jones, and you're listening to 7am. It's been 0:00:10.330 --> 0:00:13.490 nearly two decades since Australians have felt the sting of 0:00:13.630 --> 0:00:17.950 interest rates this high. Reserve Bank Governor Michelle Bullock says 0:00:18.050 --> 0:00:21.750 persisted inflation left the RBA with no choice but to 0:00:21.800 --> 0:00:24.640 hike the official cash rate for the fifth time this year. 0:00:25.540 --> 0:00:28.000 But some experts fear they may have gone too far, 0:00:28.660 --> 0:00:33.600 risking sending Australia into a recession. Today, Chief Economist at 0:00:33.620 --> 0:00:37.380 the Australia Institute, Greg Jericho, on why the RBA may 0:00:37.420 --> 0:00:40.510 have got it wrong and the big corporate inflation driver 0:00:40.530 --> 0:00:49.350 no one's talking about. It's Wednesday, November 4. 0:00:53.479 --> 0:00:55.740 If we just let high inflation run, it will lead 0:00:55.780 --> 0:00:59.980 to even worse outcomes. Much higher prices, higher unemployment and 0:01:00.040 --> 0:01:03.310 lower growth. We are using the cash rate to stop 0:01:03.350 --> 0:01:06.960 that from happening. Some pain now will prevent even worse 0:01:07.000 --> 0:01:07.960 pain down the track. 0:01:08.459 --> 0:01:11.580 Greg, the Reserve Bank has raised the cash rate for 0:01:11.620 --> 0:01:16.800 the fifth time this year, taking it to 4.85%. That's 0:01:16.900 --> 0:01:20.200 the highest interest rate we've seen in Australia in about 0:01:20.200 --> 0:01:25.620 18 years. This is all about trying to reduce inflation. Bullock, 0:01:25.680 --> 0:01:28.300 she spoke about inflation a lot, about how it's higher 0:01:28.660 --> 0:01:31.370 than the RBA wants it to be. They expect it 0:01:31.390 --> 0:01:33.990 to now stay above 3% for the next year. And 0:01:34.910 --> 0:01:38.310 there's this fear that it could become embedded, meaning that 0:01:38.360 --> 0:01:41.980 people will just get used to high inflation rates. Tell 0:01:42.000 --> 0:01:45.100 me what you make of that idea and of how 0:01:45.280 --> 0:01:46.640 the RBA is trying to address it. 0:01:47.040 --> 0:01:53.690 Yeah, the RBA is really paranoid about our expectations of 0:01:53.770 --> 0:01:59.890 inflation today. being above 3%. And that's almost taken precedence 0:02:00.110 --> 0:02:04.050 on their decision making, which I think reflects the fact 0:02:04.110 --> 0:02:07.290 that the actual raising of rates isn't actually doing much 0:02:07.390 --> 0:02:11.690 to inflation. So they've sort of transferred a bit to, oh, well, 0:02:11.740 --> 0:02:14.620 it's not hurting, it's not bringing down inflation, but it's 0:02:14.639 --> 0:02:20.480 helping anchor inflationary expectations. And I think what it really 0:02:20.540 --> 0:02:23.880 shows is that despite what the Reserve Bank governor is 0:02:24.400 --> 0:02:27.160 at pains to try and stress, and this was really 0:02:27.220 --> 0:02:31.500 obvious in her press conference after the announcement, is that 0:02:32.660 --> 0:02:35.940 the main reason we're seeing inflation go up is things 0:02:36.139 --> 0:02:38.560 outside the control of the Reserve Bank. 0:02:38.980 --> 0:02:41.200 Okay, well, let's talk about that a little more, about 0:02:41.220 --> 0:02:45.000 the drivers of inflation. The RBA, they mentioned this idea 0:02:45.040 --> 0:02:47.100 of there being just too much demand in the economy. 0:02:47.160 --> 0:02:51.440 They did also mention the Middle East oil shock. Tell 0:02:51.460 --> 0:02:54.490 me what you see as the main causes of inflation 0:02:54.510 --> 0:02:55.030 at this point? 0:02:55.270 --> 0:02:58.790 I mean, the main cause by far is the oil shock. 0:02:59.310 --> 0:03:03.700 In the September quarter, petrol prices made up around 45% 0:03:03.700 --> 0:03:07.859 of the increase in inflation. So if you took away 0:03:08.340 --> 0:03:12.110 petrol prices, the overall increase in inflation in the September 0:03:12.150 --> 0:03:15.030 quarter would have basically been half what it was. But 0:03:15.810 --> 0:03:18.250 It's not just that. It's the fact that it flows 0:03:18.310 --> 0:03:22.779 through to everything that is either manufactured using oil or 0:03:22.940 --> 0:03:27.540 requires oil to get transported around. It has a massive 0:03:27.580 --> 0:03:33.000 flow-on effect, and it's undeniable that that is the main 0:03:33.100 --> 0:03:37.080 cause of inflation. And yet, the Reserve Bank is kind 0:03:37.180 --> 0:03:40.420 of suggesting, oh, no, that's just one part of it, 0:03:40.560 --> 0:03:44.750 and we've got to keep hiking up rates to counter 0:03:44.790 --> 0:03:48.600 all these other things, which is to me a really 0:03:48.660 --> 0:03:51.660 sort of almost hiking up just so people don't think 0:03:51.700 --> 0:03:53.300 that they're completely ineffectual. 0:03:53.860 --> 0:03:57.480 Okay, well, what about the role of government spending? Albanese 0:03:57.580 --> 0:03:59.760 and Chalmers are under a lot of pressure on this. 0:03:59.960 --> 0:04:04.490 Will the Treasurer finally take responsibility and admit his out-of-control 0:04:04.530 --> 0:04:09.550 spending is forcing Australian families to pay more for everything? 0:04:10.280 --> 0:04:13.720 One recent poll showed that 40% of voters blame the 0:04:13.760 --> 0:04:15.330 government for interest rate rises. 0:04:15.530 --> 0:04:18.070 They don't need inflation data to know that. They see 0:04:18.089 --> 0:04:20.290 it when they go to the supermarket, when they pay 0:04:20.310 --> 0:04:22.609 their energy bill, when they pay their insurance bill, when 0:04:22.650 --> 0:04:24.950 they pay their rent, when they try to buy a home. 0:04:25.050 --> 0:04:28.450 They're seeing inflation everywhere they look. 0:04:28.710 --> 0:04:32.520 So what impact is government spending having on inflation? Is 0:04:32.580 --> 0:04:33.460 there a problem here? 0:04:33.920 --> 0:04:38.870 I don't think so. I've been... probably a little bit 0:04:38.890 --> 0:04:41.469 of an outlier on this, but that's because I actually 0:04:41.510 --> 0:04:45.800 look at the numbers and what we're seeing, yeah, overall 0:04:45.860 --> 0:04:48.380 government spending is higher than it has been in the past. 0:04:48.400 --> 0:04:50.800 That's because in the past we didn't have an NDIS. 0:04:51.380 --> 0:04:53.760 It's amazing that when you actually have to pay for 0:04:53.800 --> 0:04:56.250 something you didn't pay for in the past, you're spending 0:04:56.260 --> 0:04:58.610 more money than in the past. But you take away 0:04:58.670 --> 0:05:02.270 the NDIS and overall government spending, certainly the federal government 0:05:02.290 --> 0:05:04.490 spending isn't that much above what it used to be. 0:05:05.250 --> 0:05:10.110 But more importantly, in terms of what's actually driving inflation, 0:05:10.670 --> 0:05:14.510 what we've seen over the past year is that federal 0:05:14.550 --> 0:05:18.360 government spending especially, but even the state government spending, has 0:05:18.420 --> 0:05:22.680 had less and less of an impact on overall economic 0:05:22.779 --> 0:05:27.740 growth in the country. So it's not the case that 0:05:28.180 --> 0:05:32.220 government spending is contributing more and more to inflation. In fact, 0:05:32.300 --> 0:05:37.620 it's been slowing. So... I'm not a big believer in 0:05:37.700 --> 0:05:40.820 this view that government spending is to blame. The figures 0:05:40.880 --> 0:05:45.130 show it's not. Obviously, people I don't think are blaming 0:05:45.310 --> 0:05:48.550 the government because they actually think government spending is too high. 0:05:48.570 --> 0:05:51.070 It's just they're doing it tough. They're really struggling and 0:05:51.130 --> 0:05:54.230 you always look to someone to blame and rightly or wrongly, 0:05:54.290 --> 0:05:56.409 the government is always the first one and it's the 0:05:56.470 --> 0:05:58.730 easiest one. So I think that's more of the case 0:05:58.790 --> 0:06:01.010 than the actual reality of what's going on. 0:06:04.390 --> 0:06:07.050 Still to come... Does the RBA want to see more 0:06:07.089 --> 0:06:16.229 of us lose our jobs? Greg, there's been a lot 0:06:16.250 --> 0:06:20.110 of talk about government spending and its impact on inflation, 0:06:20.230 --> 0:06:23.510 but not really any mention of the corporate sector. So 0:06:24.050 --> 0:06:28.049 what responsibility does it have here in terms of fighting inflation? 0:06:28.800 --> 0:06:32.690 Yeah, I mean, this is the thing that is massively 0:06:33.070 --> 0:06:37.360 under-talked about, especially by the Reserve Bank. You know, no 0:06:37.420 --> 0:06:40.860 mention of the fact that, okay, we've had oil prices soar, 0:06:40.920 --> 0:06:46.490 but we've had the Profit margins of petrol refiners or 0:06:46.589 --> 0:06:51.890 oil refiners like Ampol absolutely explode over the past six 0:06:51.950 --> 0:06:55.700 to nine months, much higher than needs to be. So 0:06:55.720 --> 0:06:59.260 their profits are going great, guns. And yet there's never 0:06:59.400 --> 0:07:04.050 any suggestion of, oh, maybe Ampol shouldn't be having... many 0:07:04.170 --> 0:07:08.050 hundreds of a percent increase in their profits. It's all just, oh, no, well, 0:07:08.089 --> 0:07:12.090 that's the free market at play. And there's nothing said 0:07:12.130 --> 0:07:14.560 of it. I mean, Michelle Bullock, even in a press 0:07:14.600 --> 0:07:17.680 conference today when she was asked about the credit card 0:07:17.720 --> 0:07:21.820 surcharge being taken away and suggesting, oh, the reason why 0:07:22.020 --> 0:07:25.440 cafes might be raising their prices more than they need 0:07:25.480 --> 0:07:28.200 to to cover that cost is due to excess demand. 0:07:28.490 --> 0:07:30.890 I don't think it's anything to do with surcharging. I 0:07:30.930 --> 0:07:33.710 think it's just another manifestation to the extent it's there. 0:07:34.250 --> 0:07:37.540 It's just another manifestation of the fact that demand for 0:07:37.560 --> 0:07:39.900 goods and services in the economy is higher than the 0:07:39.940 --> 0:07:42.920 ability to supply it so businesses can put up their prices. 0:07:43.240 --> 0:07:45.440 I'm like, no, maybe it's due to the fact that 0:07:45.480 --> 0:07:48.100 they've seen, oh, here's a way we can raise the 0:07:48.140 --> 0:07:51.280 price of our coffee and blame someone else. And what 0:07:51.320 --> 0:07:54.160 they're actually doing is just increasing their profits. I mean, 0:07:54.200 --> 0:07:56.910 this is This is what companies do. This is what 0:07:56.990 --> 0:08:02.400 businesses do when they can increase profits and blame someone else. Blame, oh, 0:08:02.440 --> 0:08:04.780 the Reserve Bank charge. It's not our fault. We're not 0:08:04.840 --> 0:08:08.740 gouging you. That's what they do. And yet, there's never 0:08:09.360 --> 0:08:11.700 any sort of mention of this. Again, you look at 0:08:11.740 --> 0:08:14.720 the figures, we can see that you can break down 0:08:15.300 --> 0:08:19.550 what's essentially driving inflation is that labour costs? Is it 0:08:19.610 --> 0:08:23.170 profits or is it sort of government spending? And in 0:08:23.230 --> 0:08:26.090 the first half of this year, it has definitely been 0:08:26.630 --> 0:08:29.210 profits that has had the outsized impact. 0:08:29.950 --> 0:08:32.790 Can we talk about another set of figures? Greg, one 0:08:32.860 --> 0:08:37.280 of the striking things that's happening is around unemployment. So 0:08:37.340 --> 0:08:39.680 it's risen from 4.1% in January to 4.7% in September. 0:08:44.429 --> 0:08:47.130 Michelle Bullock said last week that she wasn't worried about 0:08:47.230 --> 0:08:49.630 how quickly unemployment was rising. 0:08:49.809 --> 0:08:53.290 We're not worried about the pace of increase in the 0:08:53.330 --> 0:08:57.660 unemployment rate at this stage. We do forecast that it 0:08:57.700 --> 0:09:01.800 has to gradually move up. That is very different than 0:09:01.860 --> 0:09:04.280 saying that people have to lose their jobs. In fact 0:09:04.300 --> 0:09:06.900 we are forecasting that employment continues to grow. 0:09:07.179 --> 0:09:08.280 What do you make of that? 0:09:08.690 --> 0:09:12.100 Yeah, that was an extraordinary statement last week in Senate 0:09:12.150 --> 0:09:14.680 estimates to say that she wasn't worried about the pace 0:09:14.860 --> 0:09:19.939 of unemployment rising, as you say, 4.1% to 4.7%. You know, 0:09:19.980 --> 0:09:25.530 that's a very sharp increase in unemployment. And what we're 0:09:25.550 --> 0:09:28.209 seeing today in the forecast is that we're going to 0:09:28.250 --> 0:09:30.350 get even more. And this has been the problem with 0:09:30.370 --> 0:09:33.670 the Reserve Bank. Not only are they not really doing 0:09:33.710 --> 0:09:36.550 anything to help get inflation down, but all they're doing 0:09:36.670 --> 0:09:41.340 is causing unemployment to rise. In May, it was suggested 0:09:41.420 --> 0:09:46.860 by the middle of 2028, unemployment would be 4.7%. Three 0:09:46.900 --> 0:09:50.240 months ago, it changed that and made it 4.8%. And 0:09:50.280 --> 0:09:52.449 now today, it's brought it out and saying, oh, it's 0:09:52.470 --> 0:09:54.290 going to be 5% and it's going to hit 5.1% 0:09:54.290 --> 0:10:00.120 at the end of 2028. You know, this is not good. 0:10:01.559 --> 0:10:05.280 The problem is the Reserve Bank thinks full employment is 0:10:05.340 --> 0:10:10.800 whatever employment is when inflation is below 3%. So I 0:10:10.840 --> 0:10:15.160 think most people would be genuinely shocked to realise that 0:10:15.240 --> 0:10:19.500 the Reserve Bank thinks that to actually achieve full employment, 0:10:20.130 --> 0:10:24.640 unemployment needs to rise. That is absolutely what they believe 0:10:24.980 --> 0:10:28.660 and it's absolutely what they're trying to make happen. They 0:10:28.720 --> 0:10:33.020 are trying to get unemployment to rise. Now, the risk 0:10:33.140 --> 0:10:37.160 is that unemployment rises faster than they expected and all 0:10:37.220 --> 0:10:40.079 their projections so far have been wrong. It has risen 0:10:40.140 --> 0:10:43.920 faster than expected. And the problem with unemployment is once 0:10:44.000 --> 0:10:48.140 it starts going up fast, it generally tends to go 0:10:48.220 --> 0:10:52.190 up even faster and higher And it's very hard to stop. 0:10:52.950 --> 0:10:54.890 And that's when you start looking at a recession. 0:10:56.230 --> 0:11:00.790 Let's talk a little more about that. Back in September, 0:11:00.830 --> 0:11:03.410 Michelle Bullock said it would take 12 to 18 months 0:11:03.470 --> 0:11:06.430 for the full effect of interest rate rises to be felt. 0:11:07.210 --> 0:11:09.510 Last week, she acknowledged that we're waiting to see the 0:11:09.550 --> 0:11:12.189 full impact of the increases that the RBA has already 0:11:12.230 --> 0:11:16.330 made this year. So with unemployment rising and the economy slowing, 0:11:16.910 --> 0:11:20.090 is the Reserve Bank in danger of going bankrupt? too 0:11:20.150 --> 0:11:24.420 far too quickly here? And what is the danger of recession? 0:11:24.620 --> 0:11:27.059 Yeah. I mean, I wouldn't want to put a number 0:11:27.160 --> 0:11:30.199 on it, but think about it. The last time they 0:11:30.260 --> 0:11:33.540 raised interest rates, that was at the end of September. 0:11:34.440 --> 0:11:38.350 And then when the September unemployment figures came out, we 0:11:38.470 --> 0:11:42.670 found that that had risen to 4.7%. Now, What that 0:11:42.750 --> 0:11:45.610 means is the impact of those rate rises hasn't had 0:11:45.890 --> 0:11:49.920 any effect on unemployment yet, and yet it is rising. 0:11:50.000 --> 0:11:55.300 And we're very much likely to see it rise even further. 0:11:55.320 --> 0:11:58.980 The concern is, is it going to rise faster than 0:11:59.000 --> 0:12:03.500 the Reserve Bank hopes? I think the whole thing about 0:12:03.540 --> 0:12:08.620 this 12 to 18 months of impact is, well, what's 0:12:08.820 --> 0:12:13.470 impacting unemployment? inflation right now. It's oil prices. If, as 0:12:13.500 --> 0:12:16.809 the Reserve Bank actually does predict, in 12 to 18 0:12:16.809 --> 0:12:20.530 months we start seeing oil prices go back down, well 0:12:20.550 --> 0:12:23.550 then in 12 to 18 months are we actually going 0:12:23.590 --> 0:12:26.960 to need the impact of interest rate rises now? Because 0:12:27.100 --> 0:12:29.739 the drop in oil prices will do its job for it. 0:12:31.140 --> 0:12:34.240 I think what we're seeing here is the Reserve Bank 0:12:34.679 --> 0:12:39.030 just having this headlong rush to raise interest rates to 0:12:39.130 --> 0:12:42.280 look like that being tough to look like oh yeah 0:12:42.340 --> 0:12:45.980 we're across this so that everyone knows that we still 0:12:46.059 --> 0:12:51.400 care about inflation and there's not enough heed to the 0:12:51.460 --> 0:12:55.510 damage that it is doing to people's livelihoods and you 0:12:56.170 --> 0:13:02.819 know the real risk is that They basically just misjudge 0:13:02.880 --> 0:13:06.689 the whole situation. They think that there's all this excess demand, 0:13:07.450 --> 0:13:09.750 which is code for, oh, we're all out there spending 0:13:09.790 --> 0:13:12.370 too much. There's too many people with jobs and our 0:13:12.429 --> 0:13:15.709 wages are growing too fast. Well, I haven't seen a 0:13:15.730 --> 0:13:18.910 lot of evidence of that. And if they've got that wrong, 0:13:19.010 --> 0:13:22.200 then that can make things turn dark pretty quickly. 0:13:27.040 --> 0:13:28.820 Well, Greg, thank you for speaking with me. 0:13:29.460 --> 0:13:29.840 No worries. 0:13:29.860 --> 0:13:30.300 Great to chat. 0:13:42.700 --> 0:13:45.780 Also in the news, Pauline Hanson says a One Nation 0:13:45.820 --> 0:13:49.830 volunteer allegedly attacked with a baseball bat in Victoria is 0:13:49.880 --> 0:13:54.270 in a serious but stable condition. The 60-year-old was allegedly 0:13:54.330 --> 0:13:57.650 assaulted outside his home in Torquay, southwest of Melbourne, on 0:13:57.770 --> 0:14:01.550 Sunday night after confronting people accused of interfering with his 0:14:01.660 --> 0:14:06.180 election signs. A 37-year-old man has been charged over the attack, 0:14:06.559 --> 0:14:10.760 while a 14-year-old boy has been cautioned. Victorian Premier Ben 0:14:10.820 --> 0:14:14.079 Carroll and opposition leader Jess Wilson have condemned the violence 0:14:14.660 --> 0:14:17.920 as concerns grow about the safety of campaign volunteers ahead 0:14:17.940 --> 0:14:22.390 of the November 28 state election. And a second day 0:14:22.410 --> 0:14:24.590 of hearings has begun in the High Court in a 0:14:24.630 --> 0:14:29.010 challenge to Australia's under-16s social media ban. Reddit and the 0:14:29.030 --> 0:14:32.950 Digital Freedom Project argue the law unfairly restricts young people's 0:14:33.070 --> 0:14:37.280 ability to participate in political debate. with Reddit's barrister describing 0:14:37.320 --> 0:14:41.960 the ban as ill-targeted and overbroad. The federal government argues 0:14:42.000 --> 0:14:45.479 the restrictions are justified to protect children from online harm, 0:14:45.900 --> 0:14:49.870 with the court's decision not expected for several months. I'm 0:14:49.900 --> 0:14:52.470 Ruby Jones. This is 7am. Thanks for listening.