1 00:00:08,430 --> 00:00:10,670 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. As always, I'm 2 00:00:10,670 --> 00:00:14,970 Sean Aylmer: with economist Stephen Koukoulas, you'll find him at thekouk. com, T- H- E- K- O- U- K. 3 00:00:15,220 --> 00:00:18,560 Sean Aylmer: com and on Twitter using the handle @ thekouk. Stephen, good morning. 4 00:00:18,800 --> 00:00:19,590 Stephen Koukoulas: Good morning, Sean. 5 00:00:19,970 --> 00:00:23,350 Sean Aylmer: First things first, Guy Debelle, you must know him or 6 00:00:23,350 --> 00:00:26,610 Sean Aylmer: at least have been acquaintances with him for many, many 7 00:00:26,610 --> 00:00:28,900 Sean Aylmer: years. This is the Deputy Governor of the Reserve Bank, 8 00:00:29,180 --> 00:00:32,670 Sean Aylmer: who late last week said he's pulling up stumps at 9 00:00:32,670 --> 00:00:36,190 Sean Aylmer: the central bank and heading to Fortescue Future Industries, Andrew 10 00:00:36,190 --> 00:00:38,850 Sean Aylmer: Forrest's offshoot. What did you make of that? 11 00:00:39,229 --> 00:00:41,350 Stephen Koukoulas: Well, first of all, good on him for doing it. 12 00:00:41,380 --> 00:00:44,170 Stephen Koukoulas: And as he sort of disclosed, since it's going to 13 00:00:44,170 --> 00:00:45,920 Stephen Koukoulas: be part of one of his passions. And we know 14 00:00:45,920 --> 00:00:48,930 Stephen Koukoulas: even as deputy governor, he was heavily involved in a 15 00:00:48,930 --> 00:00:52,620 Stephen Koukoulas: lot of the climate change issues and how businesses, governments 16 00:00:52,930 --> 00:00:56,090 Stephen Koukoulas: and governance can be adjusted to make sure that we 17 00:00:56,090 --> 00:00:58,330 Stephen Koukoulas: are fully aware of some of the climate change issues. 18 00:00:58,330 --> 00:01:02,330 Stephen Koukoulas: So that's a good thing. But given that Phil Lowe's 19 00:01:02,330 --> 00:01:05,509 Stephen Koukoulas: term comes up in about 18 months or so, it 20 00:01:05,510 --> 00:01:08,209 Stephen Koukoulas: was a shock because you're giving up arguably one of 21 00:01:08,209 --> 00:01:13,610 Stephen Koukoulas: the most prestigious positions in Australia, RBA Governor, and he 22 00:01:13,610 --> 00:01:15,900 Stephen Koukoulas: was really short odds to get the job when Phil 23 00:01:16,370 --> 00:01:19,000 Stephen Koukoulas: finished up in 18 months or so. So to give 24 00:01:19,000 --> 00:01:21,400 Stephen Koukoulas: that up, not just the prestige, but a million bucks 25 00:01:21,400 --> 00:01:23,640 Stephen Koukoulas: a year too, is not bad. To give that up, 26 00:01:23,640 --> 00:01:26,610 Stephen Koukoulas: says to me that perhaps there's something more just underpinning 27 00:01:26,610 --> 00:01:29,030 Stephen Koukoulas: his decision to leave. And we know the RBA's had 28 00:01:29,030 --> 00:01:31,229 Stephen Koukoulas: some internal problems the last couple of years. That it 29 00:01:31,459 --> 00:01:34,890 Stephen Koukoulas: hasn't done a great job in hitting its inflation target 30 00:01:34,890 --> 00:01:36,539 Stephen Koukoulas: and it hasn't done a great job in listening to 31 00:01:36,540 --> 00:01:39,720 Stephen Koukoulas: alternative views. So maybe that fed into his decision as 32 00:01:39,720 --> 00:01:41,900 Stephen Koukoulas: well, who knows? That might come out at a later date. 33 00:01:42,250 --> 00:01:45,310 Sean Aylmer: I thought it was interesting on Friday, Governor Philip Lowe 34 00:01:45,310 --> 00:01:47,700 Sean Aylmer: was talking and he said he was totally surprised by 35 00:01:47,700 --> 00:01:48,180 Sean Aylmer: the decision. 36 00:01:48,450 --> 00:01:51,270 Stephen Koukoulas: Yes, yes. I think that Guy would've kept it very 37 00:01:51,270 --> 00:01:54,830 Stephen Koukoulas: much under his hat and again, without sort of breaching 38 00:01:54,830 --> 00:01:55,971 Stephen Koukoulas: any great sort of confidences that are around. 39 00:01:55,971 --> 00:01:56,640 Sean Aylmer: Go on. Breach of confidence Steve. 40 00:01:57,710 --> 00:01:59,910 Stephen Koukoulas: Certainly not with Guy, I have not spoken to Guy. 41 00:02:00,070 --> 00:02:02,330 Stephen Koukoulas: No, no, not at all. But yeah, for several years 42 00:02:02,330 --> 00:02:05,330 Stephen Koukoulas: the RBA's had a bit of a problem in terms 43 00:02:05,330 --> 00:02:09,100 Stephen Koukoulas: of its willingness to have an open mind, I think. 44 00:02:09,169 --> 00:02:11,540 Stephen Koukoulas: And there has been some dissent in terms of when 45 00:02:11,540 --> 00:02:13,919 Stephen Koukoulas: they should have cut rates in the easing cycle, even 46 00:02:13,919 --> 00:02:16,829 Stephen Koukoulas: before COVID came along. It missed its inflation target for 47 00:02:16,830 --> 00:02:19,900 Stephen Koukoulas: approximately five years before it came. And now there's a 48 00:02:19,900 --> 00:02:22,389 Stephen Koukoulas: similar debate, probably going on with the fed as well, 49 00:02:22,540 --> 00:02:24,900 Stephen Koukoulas: who haven't hiked rates yet, but other central banks' inflation's 50 00:02:24,900 --> 00:02:28,049 Stephen Koukoulas: picking up. Should we give a preemptive hike right now? 51 00:02:28,050 --> 00:02:32,100 Stephen Koukoulas: You know, just 25, 50 basis points. And clearly Phil's 52 00:02:32,100 --> 00:02:34,679 Stephen Koukoulas: not keen on the issue. I'm just wondering whether other 53 00:02:34,680 --> 00:02:36,419 Stephen Koukoulas: people in the bank would've been a bit more hawkish 54 00:02:36,470 --> 00:02:38,520 Stephen Koukoulas: in this high inflation cycle that's unfolding. 55 00:02:38,860 --> 00:02:40,440 Sean Aylmer: Yeah. I think I just want to mention about last week 56 00:02:40,440 --> 00:02:43,120 Sean Aylmer: before we get on to the labour force data this week. 57 00:02:43,570 --> 00:02:47,690 Sean Aylmer: The incredible ride of commodity prices last week and what 58 00:02:47,690 --> 00:02:50,869 Sean Aylmer: it means for inflation and global growth? 59 00:02:51,160 --> 00:02:55,960 Stephen Koukoulas: Well, we've seen staggering volatility, more volatility up and down 60 00:02:56,590 --> 00:02:58,770 Stephen Koukoulas: for a whole range of commodity prices. A lot of 61 00:02:58,770 --> 00:03:01,810 Stephen Koukoulas: ag prices, wheat price surge, I think it was 50% 62 00:03:01,810 --> 00:03:04,210 Stephen Koukoulas: or 60% in a number of days. It's come off 63 00:03:04,210 --> 00:03:06,700 Stephen Koukoulas: a bit sort of early this week, but things like 64 00:03:06,700 --> 00:03:09,769 Stephen Koukoulas: nickel prices were up 80%. They actually banned trading or 65 00:03:09,770 --> 00:03:11,720 Stephen Koukoulas: stopped trading because there was just no depth to the 66 00:03:11,720 --> 00:03:14,419 Stephen Koukoulas: markets there and these price swings were incredible. Oil prices 67 00:03:14,419 --> 00:03:16,540 Stephen Koukoulas: we're seeing with our petrol price when we fill up 68 00:03:16,540 --> 00:03:18,460 Stephen Koukoulas: the car over the weekend, gosh, that was a bit 69 00:03:18,460 --> 00:03:21,580 Stephen Koukoulas: of a nasty shock. So this commodity price surge is 70 00:03:21,580 --> 00:03:23,760 Stephen Koukoulas: one of the consequences. It was sort of happening before 71 00:03:23,760 --> 00:03:27,149 Stephen Koukoulas: the Ukraine, Russia war commenced, but it really has got 72 00:03:27,150 --> 00:03:30,120 Stephen Koukoulas: a kick along with that disruption to so many important 73 00:03:30,120 --> 00:03:31,810 Stephen Koukoulas: commodities around the economy now. 74 00:03:33,889 --> 00:03:36,740 Sean Aylmer: So what's it mean though? Is the fear that these commodity prices push through not 75 00:03:36,740 --> 00:03:39,790 Sean Aylmer: just headline inflation, but also underlying inflation? 76 00:03:40,030 --> 00:03:40,190 Stephen Koukoulas: Yeah. 77 00:03:40,370 --> 00:03:42,730 Sean Aylmer: And then global growth slows as well. So you kind 78 00:03:42,730 --> 00:03:44,190 Sean Aylmer: of have a situation you don't want. 79 00:03:44,720 --> 00:03:47,430 Stephen Koukoulas: It's not good for the world economy. Australia will probably 80 00:03:47,430 --> 00:03:49,550 Stephen Koukoulas: do okay because we've got a lot of commodity exporters, 81 00:03:49,550 --> 00:03:52,430 Stephen Koukoulas: both agriculture and the mining sector, of course. And so if 82 00:03:52,720 --> 00:03:54,270 Stephen Koukoulas: you look at the share price of a lot of 83 00:03:54,270 --> 00:03:57,020 Stephen Koukoulas: the coal producers and the like, they've actually done pretty well, 84 00:03:57,070 --> 00:03:59,480 Stephen Koukoulas: on the back of the high prices, obviously. But what 85 00:03:59,480 --> 00:04:01,930 Stephen Koukoulas: it might mean is that we do have this cost 86 00:04:01,930 --> 00:04:04,030 Stephen Koukoulas: pressure for a lot of businesses who rely on these 87 00:04:04,030 --> 00:04:07,020 Stephen Koukoulas: input costs, not just transport companies with energy and oil 88 00:04:07,020 --> 00:04:09,260 Stephen Koukoulas: and these sorts of things. But if you're getting nickel 89 00:04:09,260 --> 00:04:12,570 Stephen Koukoulas: and copper prices sort of zooming the way that they have, 90 00:04:12,750 --> 00:04:15,720 Stephen Koukoulas: wheat prices feeding into food stuffs and the like. We 91 00:04:15,720 --> 00:04:18,180 Stephen Koukoulas: are going to be getting headline inflation rates, and we 92 00:04:18,180 --> 00:04:19,640 Stephen Koukoulas: saw at the end of last week, the US had a 7.9% 93 00:04:21,260 --> 00:04:24,960 Stephen Koukoulas: annual inflation rate. Gosh, the highest in 40 odd years. Does 94 00:04:24,960 --> 00:04:28,219 Stephen Koukoulas: that get even built upon further when these prices filter 95 00:04:28,220 --> 00:04:31,349 Stephen Koukoulas: through into their measures of inflation? The answer's probably yes. 96 00:04:31,870 --> 00:04:34,140 Stephen Koukoulas: And are we looking at a scenario that, come the middle 97 00:04:34,140 --> 00:04:39,390 Stephen Koukoulas: of this year, we are seeing the US, the Eurozone, UK, Canada, 98 00:04:39,410 --> 00:04:43,360 Stephen Koukoulas: and maybe even Australia having inflation rates sort of testing 10%. 99 00:04:43,360 --> 00:04:45,180 Stephen Koukoulas: I can't believe I just said that, but you know, 100 00:04:45,520 --> 00:04:48,310 Stephen Koukoulas: it's not impossible the way these commodity prices are going. 101 00:04:48,600 --> 00:04:51,420 Sean Aylmer: Okay. So the big one this week is labour force. 102 00:04:51,490 --> 00:04:53,830 Sean Aylmer: The unemployment rate, will it go below 4%? 103 00:04:54,690 --> 00:04:56,940 Stephen Koukoulas: There's a chance. These are for the month of February. 104 00:04:57,089 --> 00:04:59,290 Stephen Koukoulas: And we know that January took a little bit of 105 00:04:59,290 --> 00:05:01,980 Stephen Koukoulas: a hit with the numbers. Certainly, the hours worked fell 106 00:05:01,980 --> 00:05:06,089 Stephen Koukoulas: very sharply in January because of Omicron, people being impacted 107 00:05:06,089 --> 00:05:08,589 Stephen Koukoulas: by it, either directly by getting the illness or staying 108 00:05:08,589 --> 00:05:10,929 Stephen Koukoulas: home or isolating when a family member got it. So 109 00:05:11,270 --> 00:05:13,540 Stephen Koukoulas: we know those numbers were arguably a bit softer than 110 00:05:13,540 --> 00:05:16,529 Stephen Koukoulas: they would've otherwise been. So given we know that job 111 00:05:16,529 --> 00:05:19,860 Stephen Koukoulas: ads and job vacancies have again been booming. The NAB 112 00:05:19,860 --> 00:05:24,380 Stephen Koukoulas: business confidence survey pointed to ongoing strength in demand for labour. 113 00:05:25,029 --> 00:05:29,410 Stephen Koukoulas: So if we get a plus 40 odd thousand in 114 00:05:29,410 --> 00:05:32,950 Stephen Koukoulas: employment and the participation rate doesn't change much, we could 115 00:05:33,220 --> 00:05:37,930 Stephen Koukoulas: for the first time since 1974, see an unemployment with 116 00:05:37,930 --> 00:05:41,299 Stephen Koukoulas: a three point something, maybe not this month, but it's 117 00:05:41,330 --> 00:05:42,919 Stephen Koukoulas: probably coming in the months ahead. 118 00:05:43,300 --> 00:05:46,720 Sean Aylmer: Yeah. Quite incredible, isn't it? I mean, surely you are getting 119 00:05:46,720 --> 00:05:49,380 Sean Aylmer: towards full employment then. Which is part of the reason the 120 00:05:49,380 --> 00:05:52,760 Sean Aylmer: Reserve Bank doesn't cut interest rates is it's also legislated 121 00:05:53,040 --> 00:05:55,640 Sean Aylmer: to push for full employment. Surely we are close to 122 00:05:55,640 --> 00:05:56,310 Sean Aylmer: full employment? 123 00:05:56,580 --> 00:05:58,279 Stephen Koukoulas: I think we are. And of course, it's a bit 124 00:05:58,279 --> 00:05:59,680 Stephen Koukoulas: of a moving feast. And the only way you can 125 00:05:59,680 --> 00:06:03,060 Stephen Koukoulas: tell whether you've got to full employment is with hindsight 126 00:06:03,060 --> 00:06:05,570 Stephen Koukoulas: when wages growth picks up. And again, that's what Dr. 127 00:06:05,570 --> 00:06:08,250 Stephen Koukoulas: Lowe's been going on about with his reluctance to hike rates, 128 00:06:08,250 --> 00:06:10,680 Stephen Koukoulas: like our friends in New Zealand or the UK and Canada. 129 00:06:10,930 --> 00:06:13,190 Stephen Koukoulas: He's saying that, look, we are slightly different. We haven't 130 00:06:13,240 --> 00:06:15,010 Stephen Koukoulas: had that pick up in wages. And to that extent, 131 00:06:15,010 --> 00:06:18,479 Stephen Koukoulas: he's correct. We need to see this wage growth picking up, 132 00:06:18,480 --> 00:06:21,800 Stephen Koukoulas: but with a 4% or a sub 4% unemployment rate coming, 133 00:06:22,250 --> 00:06:24,520 Stephen Koukoulas: you would think that wages growth is sort of in 134 00:06:24,520 --> 00:06:27,460 Stephen Koukoulas: the pipeline right now. And that we're going to see that wages 135 00:06:27,460 --> 00:06:30,029 Stephen Koukoulas: growth pick up. And certainly the anecdotes from just about 136 00:06:30,029 --> 00:06:33,380 Stephen Koukoulas: every business I speak to. Be it in the Bush, 137 00:06:33,660 --> 00:06:35,310 Stephen Koukoulas: where I was last week in Charleville, or in the 138 00:06:35,310 --> 00:06:38,640 Stephen Koukoulas: big smoke in Sydney, Melbourne, Brisbane, businesses are finding it really, 139 00:06:38,640 --> 00:06:43,000 Stephen Koukoulas: really hard to attract labor. Skilled, semi- skilled, low skilled workers, 140 00:06:43,000 --> 00:06:45,160 Stephen Koukoulas: they can't find them, they're paying up. And so I 141 00:06:45,160 --> 00:06:46,589 Stephen Koukoulas: think it's just a matter of time before we see 142 00:06:46,589 --> 00:06:48,980 Stephen Koukoulas: our wages numbers, probably in the next quarter or two, 143 00:06:48,980 --> 00:06:49,839 Stephen Koukoulas: really kicking higher. 144 00:06:50,140 --> 00:06:51,960 Sean Aylmer: Just the other one I wanted to quickly mention is 145 00:06:51,960 --> 00:06:54,810 Sean Aylmer: the population figures for the September quarter, seems like a 146 00:06:54,810 --> 00:06:57,690 Sean Aylmer: long time ago. But you know, immigration, those sorts of 147 00:06:57,690 --> 00:06:59,390 Sean Aylmer: things will show through on that, won't they? 148 00:06:59,800 --> 00:07:02,270 Stephen Koukoulas: Yes. Well for the September quarter, yes it does seem 149 00:07:02,529 --> 00:07:04,450 Stephen Koukoulas: a long time ago, but don't forget that's when we 150 00:07:04,450 --> 00:07:07,240 Stephen Koukoulas: were still very, very much in lockdown. We had the 151 00:07:07,350 --> 00:07:10,720 Stephen Koukoulas: east coast lockdown when we had our concerns about how 152 00:07:10,720 --> 00:07:13,470 Stephen Koukoulas: we're managing the COVID crisis. So we're probably going to 153 00:07:13,690 --> 00:07:17,170 Stephen Koukoulas: see immigration again, slightly negative, more people going out of 154 00:07:17,170 --> 00:07:20,180 Stephen Koukoulas: Australia than coming in. Luckily we are still having a few 155 00:07:20,180 --> 00:07:22,840 Stephen Koukoulas: babies, so probably natural increase will be a little bit 156 00:07:22,840 --> 00:07:25,770 Stephen Koukoulas: higher, so more babies than deaths. So the numbers though 157 00:07:25,870 --> 00:07:28,230 Stephen Koukoulas: are suggesting that really, when you look at the last 158 00:07:28,230 --> 00:07:31,470 Stephen Koukoulas: two years or since the COVID crisis hit us at 159 00:07:31,470 --> 00:07:35,050 Stephen Koukoulas: the beginning of 2020, we'll have had almost no population 160 00:07:35,050 --> 00:07:39,610 Stephen Koukoulas: growth. Immigration, probably negative, minus 100, 000 or thereabouts in 161 00:07:39,610 --> 00:07:43,239 Stephen Koukoulas: those 18 months or so. But natural increase up about a 100,000, 150, 162 00:07:43,330 --> 00:07:47,440 Stephen Koukoulas: 000. So population growth very weak. Big implications for the 163 00:07:47,440 --> 00:07:51,140 Stephen Koukoulas: businesses in Australia that rely on orders of magnitude, economies 164 00:07:51,140 --> 00:07:53,180 Stephen Koukoulas: of scale to make their money. And of course, when 165 00:07:53,180 --> 00:07:55,130 Stephen Koukoulas: you've got weak population growth it's harder to do. 166 00:07:55,480 --> 00:07:56,520 Sean Aylmer: Stephen, have a great week. 167 00:07:56,800 --> 00:07:57,440 Stephen Koukoulas: Thank you, Sean. 168 00:07:57,680 --> 00:08:00,000 Sean Aylmer: That was economist Steven Koukoulas better known as The Kouk. 169 00:08:00,580 --> 00:08:02,640 Sean Aylmer: You can find him at thekouk. com and follow him 170 00:08:02,640 --> 00:08:05,800 Sean Aylmer: on Twitter using the handle @ thekouk. I'm Sean Aylmer and this 171 00:08:05,800 --> 00:08:07,110 Sean Aylmer: is Fear and Greed - The Week Ahead.