Podcast Appearances
I mean, the second round inflation effects, people might start to hear that mentioned.
It's all about, it's not just that straight up immediate, hey, price at the petrol station went up.
It's
that's sort of direct first round impacts that that's what the reserve bank can't control they're not necessarily worried about i mean they're going to be worried about it but um only to the extent that that flows through to lasting so-called second round effects which is where a trucking company to you know to get goods around the country that they're paying more for fuel as well so they're going to have to raise their selling prices that feeds into input costs for somebody else you know a supermarket has to charge more because it's costing them more to get the goods in um
farmers you know diesel prices going up for that production I mean farmers are largely price takers I guess they can't really set prices but still across the economy that second round impact is the wider you know that flow through from higher fuel prices what that does to costs of production and then how that feeds through to kind of more lasting inflation manufacturers they use energy as well so their costs are going up they're going to have to pass that on if they can I mean in a
in a sluggish economy there's there's a limit to how much price rises can be passed through but you know all these things get really circular in this kind of this interaction thing so so yeah that the second round impacts are all it's it's that it's that that flow through to the wider economy wider production costs how that comes through to inflation and i guess also how it impacts inflation expectations you know if people are thinking gee
this thing's going to last for a while petrol prices are going to be higher for a while diesel costs are going to be higher for a while you know i'm going to have to actually pass this through i can't absorb it i'm going to have to pass it on so you know the inflation kind of becomes a bit more embedded and and that's where
the Reserve Bank will get more concerned about it if it's passing through to what people are expecting as well, because that plays a role in what the Reserve Bank does.
But yeah, at the same time, if things are costing more, if you're paying more for your petrol, if firms are paying more for petrol, diesel, all of this, there's less discretionary money available for other things.
I mean, households are going to have to pay more at the petrol station.
There's less to spend at the grocery shop or
or wherever at the restaurant so you know the overall spending takes a takes a hit from that so there's you know there is circularity here and this is what will go into the big treasury models and the reserve bank models i've just got one in my head which i'm kind of sort of weighing all this up but um yeah so it's definitely not clear cut um but i think for me
you know, there's the big uncertainty about how long it will last.
But I guess I just probably worry more about the wider economic impact.
It's the real economy.
If people are having to pay more for petrol, if this is crimping business spending, business activity, then eventually there's going to be a downwards economic impact here, and especially global uncertainty as well.
I mean, you know, we just talked about the GDP numbers.
It was pretty much held up by agriculture.
If we can't
export as much if you know if shipping's disrupted um all of that stuff that that's gonna that's gonna hurt the economy for sure and and with the spare capacity that already exists uh you know that will hopefully hold inflation a bit lower than it otherwise might have been but then that weakening economy would would bring down inflation as well so um