1 00:00:08,039 --> 00:00:10,619 Sean Aylmer: Welcome to Fear & Greed, The Week Ahead. I'm Sean Aylmer. 2 00:00:10,619 --> 00:00:12,569 Sean Aylmer: And as always at this time on a Monday morning, 3 00:00:12,570 --> 00:00:16,379 Sean Aylmer: I'm joined by economist, Stephen Koukoulas. You'll find him at thekouk. 4 00:00:16,379 --> 00:00:18,930 Sean Aylmer: com, T- H- E- K- O- U- K. I hope 5 00:00:18,930 --> 00:00:20,340 Sean Aylmer: you know how to spell that by now. I've been 6 00:00:20,340 --> 00:00:22,800 Sean Aylmer: saying it for about three years. Thekouk. com and on 7 00:00:22,800 --> 00:00:27,809 Sean Aylmer: Twitter and on X using the handle, TheKouk. Stephen "The Kouk" Koukoulas, 8 00:00:27,809 --> 00:00:28,440 Sean Aylmer: good morning. 9 00:00:28,679 --> 00:00:29,430 Stephen Koukoulas: Good morning, Sean Aylmer. 10 00:00:29,430 --> 00:00:34,020 Sean Aylmer: Thank you very much. Very big week this week with 11 00:00:34,289 --> 00:00:37,530 Sean Aylmer: inflation numbers coming out, but let's just briefly check in 12 00:00:37,530 --> 00:00:41,010 Sean Aylmer: on what happened last week. We had Michele Bullock making 13 00:00:41,010 --> 00:00:43,680 Sean Aylmer: her first speech as the Reserve Bank Governor, also labor 14 00:00:43,680 --> 00:00:44,340 Sean Aylmer: force stats. 15 00:00:45,030 --> 00:00:48,330 Stephen Koukoulas: Yes, and we'll kick off with the labor force numbers 16 00:00:48,330 --> 00:00:50,729 Stephen Koukoulas: because they were something of a mixed bag, something for 17 00:00:50,729 --> 00:00:53,549 Stephen Koukoulas: everybody, as they say in the classics, because we had 18 00:00:53,549 --> 00:00:57,720 Stephen Koukoulas: quite a weak employment result, only up about 6, 700 19 00:00:57,720 --> 00:01:01,770 Stephen Koukoulas: people. The participation rate fell away quite sharply for a month- on- 20 00:01:01,770 --> 00:01:04,949 Stephen Koukoulas: month reading. I think that's just the monthly volatility in 21 00:01:04,950 --> 00:01:08,128 Stephen Koukoulas: the way that the numbers are calculated. But the good 22 00:01:08,130 --> 00:01:10,770 Stephen Koukoulas: news, I suppose, is that we had the unemployment rate 23 00:01:10,770 --> 00:01:16,890 Stephen Koukoulas: dropping from 3. 7% to 3.6%. So the employment momentum has been 24 00:01:17,310 --> 00:01:19,770 Stephen Koukoulas: lost, I suppose, in the economy, but the unemployment rate 25 00:01:19,770 --> 00:01:22,949 Stephen Koukoulas: isn't going up. So that was the interesting thing about 26 00:01:22,950 --> 00:01:26,399 Stephen Koukoulas: the labor force stats. So I think they added not 27 00:01:26,400 --> 00:01:29,488 Stephen Koukoulas: much to the whole debate. The economy's clearly still slowing. 28 00:01:29,969 --> 00:01:33,360 Stephen Koukoulas: The labor market has probably passed its best, but it 29 00:01:33,360 --> 00:01:37,410 Stephen Koukoulas: is not deteriorating at any sort of alarming pace. And 30 00:01:37,410 --> 00:01:39,990 Stephen Koukoulas: I think Michele Bullock, when she spoke last week, look, 31 00:01:40,559 --> 00:01:42,929 Stephen Koukoulas: it was a good speech. It was refreshing, it was 32 00:01:44,069 --> 00:01:47,069 Stephen Koukoulas: really cutting through the issues that I think also came 33 00:01:47,069 --> 00:01:49,560 Stephen Koukoulas: out in the minutes that released of the RBA board 34 00:01:49,560 --> 00:01:55,050 Stephen Koukoulas: meeting for early October, and they're not quite ready to 35 00:01:55,050 --> 00:01:59,820 Stephen Koukoulas: hike interest rates, but if inflation doesn't fall as quickly 36 00:01:59,820 --> 00:02:03,659 Stephen Koukoulas: as they like, they will hike. If it does continue 37 00:02:03,660 --> 00:02:06,989 Stephen Koukoulas: on the trajectory back to the target range, they'll sit 38 00:02:06,990 --> 00:02:09,630 Stephen Koukoulas: tight. So it's one of those ones where, like all 39 00:02:09,630 --> 00:02:12,030 Stephen Koukoulas: mere mortals, they're going to be watching the inflation data 40 00:02:12,030 --> 00:02:14,340 Stephen Koukoulas: emerging, and of course, with an eagle eye on what's 41 00:02:14,340 --> 00:02:16,830 Stephen Koukoulas: happening in the rest of the economy. So, interesting times 42 00:02:16,830 --> 00:02:17,519 Stephen Koukoulas: for the RBA. 43 00:02:17,549 --> 00:02:21,029 Sean Aylmer: Okay, so that brings us to this week. Big day 44 00:02:21,030 --> 00:02:25,710 Sean Aylmer: Wednesday. We have the September quarter consumer price index out 45 00:02:25,710 --> 00:02:27,780 Sean Aylmer: from the Bureau of Statistics. This is kind of the 46 00:02:27,780 --> 00:02:28,470 Sean Aylmer: big one, isn't it? 47 00:02:29,280 --> 00:02:33,900 Stephen Koukoulas: Bigger than Ben- Hur, bigger than big. It's huge. And 48 00:02:34,020 --> 00:02:36,719 Stephen Koukoulas: okay, we often can get carried away in economics with 49 00:02:36,719 --> 00:02:39,839 Stephen Koukoulas: one monthly or one quarterly number, and this is just 50 00:02:39,839 --> 00:02:42,750 Stephen Koukoulas: the September quarter CPI, the inflation data in the quarter. 51 00:02:43,889 --> 00:02:46,980 Stephen Koukoulas: But given what the Reserve Bank has been saying, Michele 52 00:02:46,980 --> 00:02:48,900 Stephen Koukoulas: Bullock as Governor, as I mentioned just a second ago, 53 00:02:48,900 --> 00:02:52,108 Stephen Koukoulas: in the minutes of the earlier board meeting in October, 54 00:02:52,800 --> 00:02:57,929 Stephen Koukoulas: if there's any material upside surprise in these results on 55 00:02:57,929 --> 00:03:01,290 Stephen Koukoulas: Wednesday, the rate hike decision is well and truly on 56 00:03:01,320 --> 00:03:03,900 Stephen Koukoulas: the agenda for Melbourne Cup Day, as we like to 57 00:03:03,900 --> 00:03:09,120 Stephen Koukoulas: say. And upside surprise would be something above about 1 or 1.1% 58 00:03:09,120 --> 00:03:13,001 Stephen Koukoulas: for the headline CPI quarter- on- quarter. And for the (inaudible) 59 00:03:13,001 --> 00:03:16,049 Stephen Koukoulas: , a similar sort of result. So if we were 60 00:03:16,049 --> 00:03:19,020 Stephen Koukoulas: to get a 1. 2 or 1. 3 increase quarter- on- 61 00:03:19,020 --> 00:03:21,600 Stephen Koukoulas: quarter, yep, it's game on for the rate hike. If 62 00:03:21,600 --> 00:03:24,840 Stephen Koukoulas: we get a 1 or a 0. 9, that's broadly consistent 63 00:03:24,840 --> 00:03:28,320 Stephen Koukoulas: with the RBAs forecasts. And again, in concert with the 64 00:03:28,440 --> 00:03:31,469 Stephen Koukoulas: slightly softer labor market numbers that we saw last week, 65 00:03:31,860 --> 00:03:35,520 Stephen Koukoulas: it had just reinforce this on hold, but with a 66 00:03:35,520 --> 00:03:38,550 Stephen Koukoulas: cautious rate hiking bias from the Reserve Bank. 67 00:03:39,270 --> 00:03:41,520 Sean Aylmer: Okay, just clarify, when you say quarter- on- quarter, you 68 00:03:41,520 --> 00:03:45,120 Sean Aylmer: say 1% quarter- on- quarter, you are talking about September 69 00:03:45,120 --> 00:03:46,590 Sean Aylmer: quarter compared to the? 70 00:03:46,800 --> 00:03:47,100 Stephen Koukoulas: June quarter. 71 00:03:47,099 --> 00:03:50,489 Sean Aylmer: Yeah. Righto. So it's kind of the idea that you can 72 00:03:50,490 --> 00:03:53,549 Sean Aylmer: multiply that by four times and you're getting the annualized 73 00:03:53,789 --> 00:03:54,930 Sean Aylmer: pace of inflation? 74 00:03:55,020 --> 00:03:55,770 Stephen Koukoulas: Correct, yes. 75 00:03:57,900 --> 00:04:02,160 Sean Aylmer: Okay. So you mean you get a 1.2, 1. 3, suddenly you're at a 5% plus annualized pace 76 00:04:02,160 --> 00:04:04,650 Sean Aylmer: of inflation. The Reserve Bank wouldn't like that. Otherwise, you're 77 00:04:04,650 --> 00:04:07,049 Sean Aylmer: under 4%. I mean, if you can get 0. 9%, you're 78 00:04:07,049 --> 00:04:09,810 Sean Aylmer: under 4%. They wouldn't be too worried about that. 79 00:04:09,810 --> 00:04:13,410 Stephen Koukoulas: And the path is lower, yes. And it's as simple 80 00:04:13,410 --> 00:04:16,830 Stephen Koukoulas: as that. In theory, with the 400 basis points of 81 00:04:16,830 --> 00:04:20,399 Stephen Koukoulas: rate hikes that were delivered since May, 2022, May last 82 00:04:20,400 --> 00:04:23,070 Stephen Koukoulas: year, you think that the economy and the inflation momentum 83 00:04:23,070 --> 00:04:26,700 Stephen Koukoulas: would be falling. However, these numbers in the latter part 84 00:04:26,700 --> 00:04:29,969 Stephen Koukoulas: of the quarter pick up a lot of this oil 85 00:04:29,969 --> 00:04:31,920 Stephen Koukoulas: price, the petrol price shock that we've all been seeing 86 00:04:31,920 --> 00:04:34,230 Stephen Koukoulas: when we've been filling up our cars and paying, oh 87 00:04:34,230 --> 00:04:37,470 Stephen Koukoulas: my goodness, $ 2. 10, $ 2. 20 a liter, that feeds 88 00:04:37,470 --> 00:04:40,589 Stephen Koukoulas: directly into the inflation numbers. Now, I think as we 89 00:04:40,589 --> 00:04:42,238 Stephen Koukoulas: discussed a couple of weeks ago, or it might been 90 00:04:42,240 --> 00:04:45,059 Stephen Koukoulas: with Jen that we discussed, is that the RBA would not be 91 00:04:45,059 --> 00:04:48,900 Stephen Koukoulas: hiking solely on the basis of a petrol price increase 92 00:04:48,900 --> 00:04:53,070 Stephen Koukoulas: because the oil price globally is so fickle and goodness 93 00:04:53,070 --> 00:04:54,810 Stephen Koukoulas: knows what's happening in the Middle East and the supply 94 00:04:54,810 --> 00:04:58,260 Stephen Koukoulas: of oil over there. It's such an extraordinarily difficult thing 95 00:04:58,650 --> 00:05:01,380 Stephen Koukoulas: to analyze, I suppose. But just as quickly as it 96 00:05:01,380 --> 00:05:04,378 Stephen Koukoulas: went from 75 to $ 90 a barrel, it could fall 97 00:05:04,379 --> 00:05:06,150 Stephen Koukoulas: back down and you wouldn't want to be hiking rates 98 00:05:06,540 --> 00:05:09,810 Stephen Koukoulas: and then find that there's some sort of peaceful resolution 99 00:05:09,810 --> 00:05:12,570 Stephen Koukoulas: and the oil starts getting pumped again and the oil 100 00:05:12,570 --> 00:05:15,928 Stephen Koukoulas: price falls again. So that's where it's the next nuance to 101 00:05:15,928 --> 00:05:18,119 Stephen Koukoulas: this number. So I don't think we'll be able to 102 00:05:18,120 --> 00:05:20,250 Stephen Koukoulas: just have that knee- jerk reaction when the number comes 103 00:05:20,250 --> 00:05:25,678 Stephen Koukoulas: out at 11:30 Eastern summertime on Wednesday. We'll need to 104 00:05:25,920 --> 00:05:27,690 Stephen Koukoulas: work out why it was a bit up or why 105 00:05:27,690 --> 00:05:29,550 Stephen Koukoulas: it was a bit down, depending, of course, what the 106 00:05:29,550 --> 00:05:30,210 Stephen Koukoulas: result is. 107 00:05:31,020 --> 00:05:33,120 Sean Aylmer: Okay. And you mentioned the Middle East then, and Michele 108 00:05:33,120 --> 00:05:39,029 Sean Aylmer: Bullock did mention that last week, obviously a humanitarian crisis. 109 00:05:39,029 --> 00:05:43,560 Sean Aylmer: In terms of the economy, it probably, I mean, higher 110 00:05:43,560 --> 00:05:46,169 Sean Aylmer: oil prices tends to hurt economic growth, I suppose that's 111 00:05:46,170 --> 00:05:46,859 Sean Aylmer: what I'm trying to say. 112 00:05:47,490 --> 00:05:49,770 Stephen Koukoulas: It's a tax on growth. And whether you're a business 113 00:05:49,770 --> 00:05:52,559 Stephen Koukoulas: person or a householder, it's one of those things that's 114 00:05:52,559 --> 00:05:54,959 Stephen Koukoulas: really a non- discretionary spend. I suppose we could catch 115 00:05:54,960 --> 00:05:57,389 Stephen Koukoulas: a bus or a train and leave the car at 116 00:05:57,389 --> 00:06:00,510 Stephen Koukoulas: home, but really, it's a non- discretionary thing for, well 117 00:06:00,510 --> 00:06:04,020 Stephen Koukoulas: for transport companies as they shuffle goods around the economy 118 00:06:04,290 --> 00:06:06,359 Stephen Koukoulas: and we fly up and down and around the place. 119 00:06:06,690 --> 00:06:08,789 Stephen Koukoulas: So oil is one of those ones where the higher 120 00:06:08,790 --> 00:06:12,119 Stephen Koukoulas: the price, it actually does dampen the economy. Yes, it 121 00:06:12,120 --> 00:06:14,488 Stephen Koukoulas: feeds directly into higher inflation. And I think as we 122 00:06:14,490 --> 00:06:16,559 Stephen Koukoulas: learn from the, gosh, the first oil shock in the 123 00:06:16,559 --> 00:06:19,980 Stephen Koukoulas: mid '70s, you don't hike interest rates because of that 124 00:06:19,980 --> 00:06:22,230 Stephen Koukoulas: sort of outcome. A little bit like the floods. Remember, 125 00:06:22,500 --> 00:06:25,620 Stephen Koukoulas: gosh, 18 months ago, two years ago when we had the floods in 126 00:06:25,620 --> 00:06:29,878 Stephen Koukoulas: Lismore and lettuce prices got to $ 10 and bean prices 127 00:06:29,880 --> 00:06:32,369 Stephen Koukoulas: were 45 a kilo, those things, you're not going to 128 00:06:32,370 --> 00:06:34,229 Stephen Koukoulas: hike because of that, even though it does mean higher 129 00:06:34,230 --> 00:06:37,500 Stephen Koukoulas: inflation, it means that we substitute away from lettuce and we 130 00:06:37,500 --> 00:06:40,529 Stephen Koukoulas: eat cabbages instead or something like that. 131 00:06:40,529 --> 00:06:40,530 Sean Aylmer: Cabbage, yeah. 132 00:06:40,530 --> 00:06:42,510 Stephen Koukoulas: But there's not quite that flexibility when it comes to 133 00:06:42,510 --> 00:06:45,000 Stephen Koukoulas: oil. So of course, you look at it, of course 134 00:06:45,000 --> 00:06:47,580 Stephen Koukoulas: there's some secondary effects when oil prices go up, but 135 00:06:47,580 --> 00:06:50,070 Stephen Koukoulas: when they go back down again, which history shows us 136 00:06:50,370 --> 00:06:52,830 Stephen Koukoulas: they tend to go back down after one of these 137 00:06:52,830 --> 00:06:54,959 Stephen Koukoulas: little episodes when they move higher, you don't want to be 138 00:06:54,959 --> 00:06:57,420 Stephen Koukoulas: hiking interest rates. Then all of a sudden you find a 139 00:06:57,420 --> 00:06:59,520 Stephen Koukoulas: month or two or three later, the oil price is 140 00:06:59,520 --> 00:07:02,279 Stephen Koukoulas: back down, you've hit your economy really hard, even though 141 00:07:02,279 --> 00:07:05,850 Stephen Koukoulas: that inflation pressure was, well, as I said, the classics, transitory. 142 00:07:06,330 --> 00:07:08,010 Sean Aylmer: Transitory. Stephen, have a great week. 143 00:07:08,370 --> 00:07:09,270 Stephen Koukoulas: Thank you, Sean. You too. 144 00:07:09,660 --> 00:07:12,089 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 145 00:07:12,090 --> 00:07:14,940 Sean Aylmer: You can find him at thekouk. com and follow him 146 00:07:14,940 --> 00:07:19,320 Sean Aylmer: on X using the handle TheKouk. I'm Sean Aylmer, and this is Fear & Greed, The 147 00:07:19,320 --> 00:07:19,890 Sean Aylmer: Week Ahead.