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Speaker 1: Welcome to Fear and Greed Q and A where we

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Speaker 1: ask an answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson and every Monday morning we are joined

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Speaker 1: by economist Stephen Coucoulis to look at the week ahead.

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Speaker 1: You'll find him at the kook dot com. That's t

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Speaker 1: h e k O UK dot com and on X

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Speaker 1: using the handle of the kok Stephen, Good morning, Very

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Speaker 1: good morning, Michael. Oh. I don't know about you, but

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Speaker 1: I am excited. This is a bumper week. It's a

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Speaker 1: huge week, and it's all important because there are signs

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Speaker 1: that the economy is gathering a bit of momentum. First, though,

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Speaker 1: let's go back to last week because there are a

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Speaker 1: couple of key data releases weren't there that support this.

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Speaker 1: Perhaps monthly inflation is a good place to start. It's

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Speaker 1: the first time we've had the comprehensive monthly figure, and

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Speaker 1: we talked about that in some detail. Last week we

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Speaker 1: had a jump in headline inflation underlying rate now three

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Speaker 1: point three percent figures were above the RBA's target band.

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Speaker 1: What do you make of it?

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Speaker 2: Yeah, they were both a genuine shock and it really

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Speaker 2: caused the market pricing for future interst rates, and a

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Speaker 2: lot of market economists to change their view on what

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Speaker 2: the Reserve Bank will do with interest rates over the

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Speaker 2: medium term. So what it was, we had that three

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Speaker 2: point eight percent increase in headline inflation in the year

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Speaker 2: to October. Now, our good friends and a good friend

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Speaker 2: of fear and greed, Diana Messina sort of put in

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Speaker 2: one of her notes at AMP that a lot of

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Speaker 2: the increase was in what we call administered prices, and

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Speaker 2: that market prices were still well contained. Now just give

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Speaker 2: me thirty seconds on administered prices.

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Speaker 1: I'm glad you're going to do it, because I was

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Speaker 1: about to ask for an explanation.

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Speaker 2: Administered prices are the prices that are determined largely, if

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Speaker 2: not completely, by government policy changes. So the unwinding of

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Speaker 2: the electricity subsidy was one that caused the electricity to

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Speaker 2: price rise by thirty seven percent. Now it didn't really

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Speaker 2: rise by thirty to seven percent, but from the consumer

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Speaker 2: price level, it did because those subsidies that were there

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Speaker 2: a year ago are now being phased out. Similarly with

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Speaker 2: excise on tobacco, Similarly with urban transport fares that have

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Speaker 2: been unwound given some of those very cheap fares that

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Speaker 2: were in place in a couple of states previously. So,

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Speaker 2: in a funny way, does monetary policy and is the

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Speaker 2: rate of inflation that monetary policy controls going to be

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Speaker 2: any different with a rate hike or a rate cut

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Speaker 2: for the price of transport fares, alcohol and tobacco, with

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Speaker 2: the excise petrol, with the excise increase, and of course

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Speaker 2: the electricity subsidies. So yes, it's a worry. Yes, it

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Speaker 2: kills Stone dead the discussion of any interest rate cuts

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Speaker 2: for the time being at least. And it is a warrior.

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Speaker 2: So it's one of those ones that's moved. We've got

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Speaker 2: to look at this very close to see where there's

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Speaker 2: actually something else going on. But the hear and now

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Speaker 2: I think the market reaction is probably a little bit

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Speaker 2: over the top.

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Speaker 1: A little bit extreme, just on that in terms of

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Speaker 1: electricity prices, tobacco, excis, et cetera. We know all of those,

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Speaker 1: We knew they were coming. So why then would we

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Speaker 1: be surprised by this reading.

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Speaker 2: Really good question because those things, yeah, that they were

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Speaker 2: evident to all of us. Now, this is where the

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Speaker 2: slight concern comes through in the rest of the inflation

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Speaker 2: numbers that a number of other items which are more

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Speaker 2: supply and demand linked, did have an increase in price momentum.

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Speaker 2: Look still but in the target band. But that lovely

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Speaker 2: deceleration in inflation that we'd had for the last couple

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Speaker 2: of years has not only bottomed out, but there is

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Speaker 2: a little hook high. You know, we're economists. We love

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Speaker 2: turning points in economic data. And while the turning point

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Speaker 2: in market determined inflation isn't a worry yet, it'll only

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Speaker 2: take another two or three months of further upside momentum

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Speaker 2: and then I think we start hitting the panic button.

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Speaker 1: Okay, you mentioned though that really interest rate cuts off

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Speaker 1: the table. A number of economists are now predicting that

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Speaker 1: the next move will be up. What do you think

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Speaker 1: is that the case?

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Speaker 2: Look, I still think there's enough lack of momentum in

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Speaker 2: the labor market. Remember that the RBA has got the

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Speaker 2: dual mandate inflation and the unemployment rates. So the bottom

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Speaker 2: line is that rates are on hold for a long time.

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Speaker 2: You know, it's hard to sort of even speculate whether

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Speaker 2: it's going to be May or July or whatever next year. Yeah,

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Speaker 2: a long way away before we see a change in

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Speaker 2: rates in which direction it is. But I think the

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Speaker 2: safer discussion is more that rates are on hold, and

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Speaker 2: like the mere mortals that we are, the RBA is

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Speaker 2: just made up of humans who as the data the

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Speaker 2: same way, and they are shocked by data periodically, and

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Speaker 2: I'm sure they were last week as well.

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Speaker 1: Something I was actually going to ask you about last week,

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Speaker 1: and this is a good time to do it. Does

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Speaker 1: the RBA have a tender to just leave rates on

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Speaker 1: hold rather than risk going early, too fast, too hard,

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Speaker 1: whether it's increasing rates or decreasing rates. They'd rather be

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Speaker 1: late to the party than to act too quickly and

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Speaker 1: potentially do damage.

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Speaker 2: Look, I think it's safe to say yes, that that's right,

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Speaker 2: that the RBA has a predisposition to do nothing with

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Speaker 2: interest rates, and it's only when they are seeing a

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Speaker 2: range of economic indicators up or down to hike or cut,

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Speaker 2: and they're open to this criticism partly valid. I think

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Speaker 2: that they're sort of waiting too long before moving. They're

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Speaker 2: not preemptive, even though, and again you alluded to, we

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Speaker 2: knew these excise changes were ending and the subsidies were ending,

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Speaker 2: so we knew that headline inflation was picking up. And

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Speaker 2: the RBA did forecast that, but the magnitude was higher

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Speaker 2: than expected. But the RBA really need to sort of

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Speaker 2: see numbers, and if you do that, you can still

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Speaker 2: of wait a little bit too long. So the hiking

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Speaker 2: cycle in twenty twenty two, twenty three was probably a

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Speaker 2: little to slow. The cutting cycle probably started a little

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Speaker 2: too late, and they could have cut earlier and now

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Speaker 2: we would be genuinely talking about rate hikes if rates

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Speaker 2: were lower. Hour. So look, without sort of wanting to

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Speaker 2: throw a brick through the RBA's window, that maybe, just

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Speaker 2: maybe they could be a little bit more preemptive in

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Speaker 2: what they're doing with rates.

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Speaker 1: The other thing last week was business investment. It was

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Speaker 1: the biggest jump in four years. Capital expenditure was six

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Speaker 1: point four percent higher, way above expectations. In simple terms,

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Speaker 1: Why does this matter so much?

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Speaker 2: Oh, Michael, I did a little jig when I saw

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Speaker 2: that number. I was absolutely thrilled and excited because one

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Speaker 2: of the issues for basically a decade now is the

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Speaker 2: problem of productivity. We've spoken about productivity in the past,

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Speaker 2: and the Treasure had his round table back in August

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Speaker 2: to work out how to fix productivity. One of the

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Speaker 2: issues why productivity has been so rotten in Australia is

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Speaker 2: a lack of business investment. You think about the business

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Speaker 2: investment cycle that you get more productive when machinery and

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Speaker 2: equipment and technology and good infrastructure is allowing you as

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Speaker 2: a business person to function more efficiently productivity, And we'd

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Speaker 2: had a decade of rotten CAPEX numbers. So when I

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Speaker 2: saw the six point four percent increase in real quarterly

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Speaker 2: private sector investment, it's laying the foundation for an improvement

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Speaker 2: in productivity. Now, it won't happen in one quarter. We

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Speaker 2: need years of this to happen. But when you're getting

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Speaker 2: data centers being built, airlines coming in, so those planes

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Speaker 2: that were imported by the airlines, that are their cap X.

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Speaker 2: So if you're an airline and you buy a plane,

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Speaker 2: that's investment. But over the course of the next I

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Speaker 2: don't know. You know more than me. You're a plane fan,

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Speaker 2: how long a commercial jet lasts for. It's going to

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Speaker 2: be flying around and around and around for a decade

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Speaker 2: or two making money, faring business people and tourists and

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Speaker 2: freight all around the world. So that's why productivity is

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Speaker 2: important because without planes, you know, we can't rely on

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Speaker 2: a horse and cart to do those things.

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Speaker 1: It was the jump though in capex spending broad enough

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Speaker 1: to make a meaningful difference, or is it just in

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Speaker 1: a couple of specific sectors like data centers and technology.

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Speaker 2: Yeah, look, it was genuinely concentrated in those two areas,

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Speaker 2: but there were hints that things like warehouses. You know,

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Speaker 2: the way that we are shopping nowadays, the less sort

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Speaker 2: of walking into the shopping malls and we just click click, click,

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Speaker 2: and you need that warehouse for the distribution. That's part

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Speaker 2: of the productivity too. So rather than the warehouse delivering

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Speaker 2: to a shop, we walk into the shop and put

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Speaker 2: in the boot of our car and drive home. We

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Speaker 2: go click, clicklick. It just goes from the warehouse to

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Speaker 2: our front door. That's actually more efficient way of distributing

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Speaker 2: retail purchases. So warehouses were very strong too, and I

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Speaker 2: think that's linked to that change in societal spending pattern. So, yes,

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Speaker 2: one quarter, we don't get too excited, although I confess

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Speaker 2: I did if we see another couple of quarters. And

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Speaker 2: the thing Michael that was partly overlook is that the

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Speaker 2: survey also had expected capex over the next financial year,

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Speaker 2: and it was up seven percent which is not a

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Speaker 2: bad outcome. So if we get that locked in, then

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Speaker 2: it's not just this one quarter wonder. We will actually

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Speaker 2: get a trend improvement. And again, like I was saying before,

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Speaker 2: turning points on graphs are the thing that excite me,

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Speaker 2: We're going to see capex moving higher over the course

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Speaker 2: of the next year.

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Speaker 1: All right, how does that then feed into the big

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Speaker 1: number this week GDP? We get that this week, which

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Speaker 1: I know you are very excited about. Are we going

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Speaker 1: to see you do another jig Steven?

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Speaker 2: I hope. So we're looking for a quarterly increase of

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Speaker 2: point seven for GDP growth, which would bring the annual

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Speaker 2: increase to a round about two point two to two

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Speaker 2: point three percent. And in a way that doesn't sound great,

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Speaker 2: but that would be the fastest rate of economic growth

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Speaker 2: in about three years. Again, so we've got through that

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Speaker 2: down to and I remember this is important to remember

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Speaker 2: where were we Where the hell have we come from?

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Speaker 2: In twenty twenty four, GDP growth was sub one percent.

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Speaker 2: That's why we were all feeling miserable. The economy was weak,

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Speaker 2: we weren't spending interest rates, with too high cost of

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Speaker 2: living pressures. Many of those things have either receded or

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Speaker 2: completely ended, and so the economy is growing again, and

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Speaker 2: that's a beautiful thing.

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Speaker 1: What's the biggest contributor, what is the main driver? And

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Speaker 1: I suppose where's the big risk if we've been kind

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Speaker 1: of surprised, for instance, and we've seen the capacity for surprises,

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Speaker 1: what is the thing that could derail these expectations.

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Speaker 2: Yeah, the one thing that could derail them is our

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Speaker 2: the net export contribution. Because one of the things about

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Speaker 2: aircraft and adding to capex and business investment, which feeds

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Speaker 2: directly to GDP, is a lot of that's imported. So

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Speaker 2: when we import something, that's a negative for GDP growth

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Speaker 2: because we don't make planes, for example. So that could

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Speaker 2: be where there's a bit of a downside risk to

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Speaker 2: the GDP numbers. But we do know that household spending

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Speaker 2: growth has been moderately positive. We know that there's been

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Speaker 2: a turning point in dwelling investment. We know capex, as

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Speaker 2: we're just discussing, has been a little bit stronger. The

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Speaker 2: other one, which is one that we have no partial

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Speaker 2: indicators on, is government demand. And we know over the

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Speaker 2: last two years that we've had a boom in government

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Speaker 2: spending and across state and commonwealth and local government areas

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Speaker 2: that appears to be slowing down. And certainly what we're

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Speaker 2: hearing from the government lead up to the next budget

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Speaker 2: next year is that they're looking for savings. So have

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Speaker 2: we already seen some of that public sector, which is

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Speaker 2: an important part of GDP starting to just moderate. So

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Speaker 2: that's some downside risk too, But for the here and now,

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Speaker 2: from what we know, we're going to see a nice

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Speaker 2: two percent plus GDP growth rate and that's something that

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Speaker 2: I'm going to be celebrating with a nice strong cup

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Speaker 2: of coffee.

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Speaker 1: Now very quickly, because we are pretty much out of time.

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Speaker 1: Monthly household spending, this is something else that we find

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Speaker 1: out this week, and he did just mention that it

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Speaker 1: has been growing, but it's been.

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Speaker 2: A little bit.

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Speaker 1: We've just talked a lot about these signs that the

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Speaker 1: economy is kind of is growing. Is there a mismatch

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Speaker 1: between kind of what households are doing and what households

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Speaker 1: are seeing and the cost of living pressures that everyone

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Speaker 1: is still under and these signs of economic growth.

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Speaker 2: Look, the household spinning numbers should be a little bit

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Speaker 2: better because there are a few things that are still positive.

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Speaker 2: And while you know, we do like to sort of

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Speaker 2: moan and grain man electricity bill comes in, and the

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Speaker 2: insurance bill comes in and all these other things. But

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Speaker 2: we have had three rate cuts. They're impacting on us.

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Speaker 2: Now we have had wages growth at a moderate but

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Speaker 2: positive pace. That's helping the wealth effect from house prices

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Speaker 2: booming is generating some sort of confidence in the economy.

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Speaker 2: Believe it. I'm not okay to the issues of the

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Speaker 2: intergenerational inequality of house price booms, but it actually does

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Speaker 2: add to the rate of economic growth. So they're the

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Speaker 2: positives that are being offsetting some of this. You know,

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Speaker 2: still pretty tepid consumer sentiment that's out there.

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Speaker 1: There are so much more that we could have talked

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Speaker 1: about house prices and building a pre It is hopefully

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Speaker 1: up a jumbo jumbo week for the economy. Steven enjoy it.

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Speaker 2: Thank you, Michael.

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Speaker 1: That was Economy of Stephen COO. Coolis better known as

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Speaker 1: the Kook. You can find him at the kook dot

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Speaker 1: com and follow him on X using the handle of

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Speaker 1: the Kook. A Michael Thompson And this is fear and

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Speaker 1: Greek Q and a