1 00:00:09,510 --> 00:00:12,299 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. This is 2 00:00:12,300 --> 00:00:14,400 Sean Aylmer: where we take a look at the big events, reports 3 00:00:14,530 --> 00:00:16,880 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:16,880 --> 00:00:19,750 Sean Aylmer: the economy and look back at what happened last week too. 5 00:00:19,970 --> 00:00:21,970 Sean Aylmer: I'm Sean Aylmer and every Monday I'm joined for The 6 00:00:21,970 --> 00:00:25,320 Sean Aylmer: Week Ahead by economist Stephen Koukoulas. You'll find him at 7 00:00:25,460 --> 00:00:30,640 Sean Aylmer: thekouk.com and on Twitter using the handle, @TheKouk, that's T- H- E- K- O- U- K. Stephen, 8 00:00:30,700 --> 00:00:31,300 Sean Aylmer: good morning. 9 00:00:31,500 --> 00:00:32,530 Stephen Koukoulas: Good morning, Sean. 10 00:00:32,780 --> 00:00:36,519 Sean Aylmer: So last week, the wage price index from the Bureau 11 00:00:36,530 --> 00:00:39,170 Sean Aylmer: Statistics. That was a cracker. I like that story. 12 00:00:39,500 --> 00:00:41,350 Stephen Koukoulas: There's a bit for everybody in it, I think. Because 13 00:00:41,350 --> 00:00:44,450 Stephen Koukoulas: of course, we've got wages still below what the Reserve 14 00:00:44,450 --> 00:00:46,990 Stephen Koukoulas: Bank would like to see. So the annual increase in 15 00:00:47,100 --> 00:00:51,180 Stephen Koukoulas: all wages was 2.2%. So still a fair way from 16 00:00:51,180 --> 00:00:53,000 Stephen Koukoulas: the three to three and a half that the RBA 17 00:00:53,000 --> 00:00:57,200 Stephen Koukoulas: would love to see. But when you cut the numbers down 18 00:00:57,200 --> 00:00:59,190 Stephen Koukoulas: a little bit, you can see that public sector wages, 19 00:00:59,190 --> 00:01:01,000 Stephen Koukoulas: which of course have been subjected to a lot of 20 00:01:01,000 --> 00:01:04,300 Stephen Koukoulas: wage freezes from the state, the federal governments, the territory governments. 21 00:01:04,819 --> 00:01:07,709 Stephen Koukoulas: They were really, really weakened. Private sector wages, which of 22 00:01:07,709 --> 00:01:12,130 Stephen Koukoulas: course are more linked to market forces actually rose by 2. 4% 23 00:01:13,270 --> 00:01:15,580 Stephen Koukoulas: over the year, which was equal to the highest rating 24 00:01:15,580 --> 00:01:17,980 Stephen Koukoulas: since 2014. So again, it's not the sort of thing 25 00:01:17,980 --> 00:01:20,940 Stephen Koukoulas: that's going to be so celebrated that wages growth is 26 00:01:20,940 --> 00:01:25,929 Stephen Koukoulas: finally bursting forward, but it's double what it was a 27 00:01:25,930 --> 00:01:28,259 Stephen Koukoulas: year ago when annual wages growth for the private sector 28 00:01:28,260 --> 00:01:32,280 Stephen Koukoulas: was 1. 2%. So we're at 2. 4% and the momentum 29 00:01:32,280 --> 00:01:35,410 Stephen Koukoulas: still seems to be more up than down. So a 30 00:01:35,410 --> 00:01:38,050 Stephen Koukoulas: hint of optimism for those of us looking for higher 31 00:01:38,050 --> 00:01:40,729 Stephen Koukoulas: wages to sort of be an indicator that the economy's 32 00:01:40,730 --> 00:01:41,500 Stephen Koukoulas: doing pretty well. 33 00:01:42,000 --> 00:01:45,680 Sean Aylmer: Yeah. Phil Lowe, the Governor of the Reserve Bank, earlier last week, 34 00:01:45,740 --> 00:01:49,590 Sean Aylmer: ahead of those wage numbers, came out and reiterated that 35 00:01:49,660 --> 00:01:51,830 Sean Aylmer: he didn't think that interest rates would need to rise 36 00:01:51,830 --> 00:01:55,550 Sean Aylmer: until 2024. That's the central case scenario. He also said 37 00:01:55,550 --> 00:01:58,110 Sean Aylmer: that wages was actually the key difference between what the 38 00:01:58,110 --> 00:02:01,480 Sean Aylmer: Reserve Bank is thinking and what market economists are thinking. 39 00:02:01,900 --> 00:02:03,560 Stephen Koukoulas: Yes, it was a good speech and look he covered 40 00:02:03,820 --> 00:02:06,120 Stephen Koukoulas: all the bases. And I think it just, as you 41 00:02:06,170 --> 00:02:08,720 Stephen Koukoulas: alluded to there, it boils down to the assessment on 42 00:02:09,080 --> 00:02:11,690 Stephen Koukoulas: how quickly we get to full employment. And that probably 43 00:02:11,690 --> 00:02:15,399 Stephen Koukoulas: means unemployment at 4%, maybe even a touch lower 3.75% 44 00:02:16,810 --> 00:02:19,530 Stephen Koukoulas: or something like that. And then what that means for wages. 45 00:02:19,530 --> 00:02:23,290 Stephen Koukoulas: Will we see, as the Reserve Bank is forecasting, the 2. 2% 46 00:02:23,290 --> 00:02:26,410 Stephen Koukoulas: goes to 2.5% in the middle of next year, goes 47 00:02:26,410 --> 00:02:30,760 Stephen Koukoulas: to 2.75% and then finally hits 3% in 2023? And 48 00:02:30,760 --> 00:02:33,220 Stephen Koukoulas: that's when they start talking of rate hikes in 2024, 49 00:02:33,270 --> 00:02:36,590 Stephen Koukoulas: or are we going to see something that's been evident 50 00:02:36,590 --> 00:02:39,350 Stephen Koukoulas: in the US, in the UK last week, we saw wages, 51 00:02:39,350 --> 00:02:41,670 Stephen Koukoulas: numbers coming up and they were really, really strong? Are 52 00:02:41,770 --> 00:02:44,609 Stephen Koukoulas: we just a quarter behind what's happening overseas? And the 53 00:02:44,610 --> 00:02:47,580 Stephen Koukoulas: jury's out on that of course. But if Dr. Lowe 54 00:02:47,930 --> 00:02:50,760 Stephen Koukoulas: is wrong and what we are seeing globally starts to 55 00:02:50,760 --> 00:02:53,459 Stephen Koukoulas: show up in the next quarter or two here, in 56 00:02:53,460 --> 00:02:56,240 Stephen Koukoulas: terms of labour market outcomes, in terms of these wage pressures, 57 00:02:56,240 --> 00:02:59,580 Stephen Koukoulas: then he may have to revisit his assessment on monetary policy. 58 00:02:59,580 --> 00:03:01,239 Stephen Koukoulas: And he did acknowledge that too. He said, "Look, if 59 00:03:01,240 --> 00:03:04,330 Stephen Koukoulas: we are wrong" and there's a probability that they will be, 60 00:03:04,650 --> 00:03:07,590 Stephen Koukoulas: they will hike earlier, but all that said, the market 61 00:03:07,590 --> 00:03:10,590 Stephen Koukoulas: didn't really move much, it's still pricing in the first 62 00:03:10,590 --> 00:03:13,430 Stephen Koukoulas: rate hike in the middle of next year, a series 63 00:03:13,430 --> 00:03:15,630 Stephen Koukoulas: of rate hikes over the following 18 months so that 64 00:03:15,770 --> 00:03:17,790 Stephen Koukoulas: when we get to the middle of 2023, the market's 65 00:03:17,790 --> 00:03:18,680 Stephen Koukoulas: saying the cash rate will be 1.5%. 66 00:03:19,750 --> 00:03:21,810 Sean Aylmer: A long way above where it is at the moment. 67 00:03:21,810 --> 00:03:24,970 Sean Aylmer: What I thought also interesting last week, Phil Lowe talked 68 00:03:24,970 --> 00:03:28,530 Sean Aylmer: about inflation pressures in Australia being a bit different to 69 00:03:28,530 --> 00:03:32,350 Sean Aylmer: overseas jurisdictions. And then you just mentioned the UK had 70 00:03:32,350 --> 00:03:35,530 Sean Aylmer: its highest inflation rate in more than 10 years. Canada's 71 00:03:35,530 --> 00:03:38,470 Sean Aylmer: highest inflation rate came out in almost 20 years. The 72 00:03:38,470 --> 00:03:41,190 Sean Aylmer: US is a couple of weeks ago, that's the highest 73 00:03:41,190 --> 00:03:46,440 Sean Aylmer: in 33 years. There's certainly inflation showing through in other economies, 74 00:03:46,860 --> 00:03:50,200 Sean Aylmer: even if in Australia, it's still fairly well contained. 75 00:03:50,640 --> 00:03:54,780 Stephen Koukoulas: Yes, and the big difference appears to be at this stage. Well, 76 00:03:54,790 --> 00:03:58,210 Stephen Koukoulas: the two big differences, one that the energy prices overseas have 77 00:03:58,210 --> 00:04:00,940 Stephen Koukoulas: been a lot more robust. They've been increasing at a 78 00:04:00,940 --> 00:04:02,900 Stephen Koukoulas: much faster rate than here, even though we are noticing 79 00:04:02,900 --> 00:04:05,560 Stephen Koukoulas: how petrol prices going up, of course, but they've actually 80 00:04:05,560 --> 00:04:11,050 Stephen Koukoulas: had electricity prices being really under shocked by shortages of 81 00:04:11,050 --> 00:04:13,890 Stephen Koukoulas: gas and coal and these sorts of things. So we've 82 00:04:13,890 --> 00:04:16,479 Stephen Koukoulas: avoided that to some extent. The second thing, which I 83 00:04:16,480 --> 00:04:20,230 Stephen Koukoulas: think is really interesting is that, of course, they all 84 00:04:20,230 --> 00:04:23,060 Stephen Koukoulas: have monthly inflation indicators. So every month you get a 85 00:04:23,060 --> 00:04:25,740 Stephen Koukoulas: lot more information that there's a tick up in these 86 00:04:25,740 --> 00:04:28,839 Stephen Koukoulas: prices and those prices and these other things. Our quarterly CPI (Consumer Price Index), 87 00:04:28,839 --> 00:04:31,990 Stephen Koukoulas: which came out just a short while ago, about three 88 00:04:31,990 --> 00:04:34,910 Stephen Koukoulas: quarters of the prices that they use, the Bureau of Statistics, 89 00:04:34,910 --> 00:04:38,029 Stephen Koukoulas: this is, are actually taken in the mid month of quarter. 90 00:04:38,029 --> 00:04:39,909 Stephen Koukoulas: So to get the September quarter numbers, they looked at 91 00:04:39,910 --> 00:04:43,370 Stephen Koukoulas: prices in August. And so they've missed what's happened in 92 00:04:43,370 --> 00:04:46,529 Stephen Koukoulas: September and October. We don't get that reading until late 93 00:04:46,529 --> 00:04:48,960 Stephen Koukoulas: January when they produced the December quarter CPI. So, that's 94 00:04:49,029 --> 00:04:51,210 Stephen Koukoulas: sort of not meant to be too much economist gobbledygook, 95 00:04:51,210 --> 00:04:53,040 Stephen Koukoulas: but it's really just to say that there could be 96 00:04:53,040 --> 00:04:58,299 Stephen Koukoulas: just a methodology issue in how we calculate our CPI 97 00:04:58,300 --> 00:05:01,250 Stephen Koukoulas: and how frequently we produce it and how frequent it's 98 00:05:01,250 --> 00:05:05,270 Stephen Koukoulas: produced overseas. So look, it would be very rare for 99 00:05:05,270 --> 00:05:08,590 Stephen Koukoulas: Australia not to be following the broad trends of global inflation. 100 00:05:09,020 --> 00:05:11,060 Stephen Koukoulas: It would be impossible to imagine that's the case. It's 101 00:05:11,060 --> 00:05:13,760 Stephen Koukoulas: just a matter of whether we're a quarter or two 102 00:05:13,760 --> 00:05:14,850 Stephen Koukoulas: behind the rest of the world. 103 00:05:15,100 --> 00:05:16,980 Sean Aylmer: Well, that's last week. We'll be back in a moment 104 00:05:17,190 --> 00:05:18,270 Sean Aylmer: and get into the week ahead. 105 00:05:18,310 --> 00:05:27,420 Sean Aylmer: I'm with economist Stephen Koukoulas, aka The Kouk. Stephen, what's on the agenda 106 00:05:27,420 --> 00:05:27,960 Sean Aylmer: this week? 107 00:05:28,380 --> 00:05:31,760 Stephen Koukoulas: Look we've got towards the back end of the week, Wednesday, Thursday, Friday. 108 00:05:31,760 --> 00:05:34,339 Stephen Koukoulas: We've got the building blocks as they say for the 109 00:05:34,839 --> 00:05:38,550 Stephen Koukoulas: September quarter GDP numbers, which come out next week. So 110 00:05:38,550 --> 00:05:41,160 Stephen Koukoulas: we've got this week, the construction work done for the 111 00:05:41,339 --> 00:05:44,170 Stephen Koukoulas: September quarter. Probably a weak number because we know that 112 00:05:44,170 --> 00:05:47,210 Stephen Koukoulas: during the lockdowns in Victoria, New South Wales and the ACT, 113 00:05:47,710 --> 00:05:50,400 Stephen Koukoulas: construction was actually hampered for quite a deal of that time. 114 00:05:50,400 --> 00:05:52,270 Stephen Koukoulas: People weren't allowed to go to the building site. So, 115 00:05:52,580 --> 00:05:55,040 Stephen Koukoulas: expect a big negative, but that's again, part of what 116 00:05:55,040 --> 00:05:57,089 Stephen Koukoulas: we already know. So there's probably not going to be 117 00:05:57,089 --> 00:06:01,010 Stephen Koukoulas: a surprise if we see a dip in construction activity 118 00:06:01,370 --> 00:06:03,310 Stephen Koukoulas: and linked to that is business investment. Again for the 119 00:06:03,500 --> 00:06:07,790 Stephen Koukoulas: September quarter, probably a little weaker because of the lockdowns. However, 120 00:06:08,500 --> 00:06:11,180 Stephen Koukoulas: the interesting part of the business investment numbers is the 121 00:06:11,240 --> 00:06:16,210 Stephen Koukoulas: expectations for business investment in the following financial year, because 122 00:06:16,210 --> 00:06:18,790 Stephen Koukoulas: the ABS asks businesses, "Well, how much are you expecting 123 00:06:18,800 --> 00:06:21,640 Stephen Koukoulas: to invest?" And that's going to be the focus of 124 00:06:21,640 --> 00:06:27,570 Stephen Koukoulas: the market. So last time, the increase exponentially was around about 10, 11%. 125 00:06:27,570 --> 00:06:30,210 Stephen Koukoulas: So a nice rebound and part of that recovery story 126 00:06:30,210 --> 00:06:33,210 Stephen Koukoulas: that we've been hearing about before Delta came along. So 127 00:06:33,450 --> 00:06:37,349 Stephen Koukoulas: if we see a similarly upbeat view on CapEx business investment, 128 00:06:37,350 --> 00:06:41,029 Stephen Koukoulas: then I think that'll be reinforcing this optimistic view about 129 00:06:41,029 --> 00:06:44,770 Stephen Koukoulas: the economy. Rounding out the week will be the retail sales 130 00:06:44,770 --> 00:06:50,180 Stephen Koukoulas: numbers for October. They coming up this Friday and October, 131 00:06:50,230 --> 00:06:53,180 Stephen Koukoulas: the lockdowns were ending through the middle part of the 132 00:06:53,180 --> 00:06:56,050 Stephen Koukoulas: month in New South Wales and Victoria and again, the ACT. 133 00:06:56,940 --> 00:06:58,980 Stephen Koukoulas: So we are probably going to get quite a strong 134 00:06:59,480 --> 00:07:01,599 Stephen Koukoulas: retail sales number. I think the market's going to be 135 00:07:01,600 --> 00:07:03,130 Stephen Koukoulas: at about plus one and a half to plus 2% 136 00:07:03,460 --> 00:07:05,930 Stephen Koukoulas: month on month, which is a strong result, but again, 137 00:07:05,930 --> 00:07:07,560 Stephen Koukoulas: explainable from the lockdowns ending. 138 00:07:07,690 --> 00:07:08,870 Sean Aylmer: Stephen, have a great week. 139 00:07:09,000 --> 00:07:09,540 Stephen Koukoulas: Thanks, Sean. 140 00:07:09,630 --> 00:07:12,030 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 141 00:07:12,630 --> 00:07:14,900 Sean Aylmer: You can find him at thekouk.com and follow him on 142 00:07:14,900 --> 00:07:17,530 Sean Aylmer: Twitter using the handle, @TheKouk. I'm Sean Aylmer and this 143 00:07:18,280 --> 00:07:19,750 Sean Aylmer: is Fear and Greed - The Week Ahead.