Chapter 1: What is the main topic discussed in this episode?
When big news breaks around the world, we've got the time to get into what's happened. The Kremlin propagandists are very happy.
And we can find out what it means for us in Australia. kangaroo caught in the headlights three and a half hours of radio national breakfast condensed into a pop to the shops maybe a tea break or a walk of the dog you can find the new breakfast wrap podcast by searching for radio national breakfast in the abc listen app
For watchers of the Australian economy, it's off to the races with important data and decisions on the horizon.
Chapter 2: What crucial data is impacting the Australian economy this week?
Wednesday's inflation data will provide crucial information for the RBA's interest rate decision. And in the United States, five of the so-called magnificent seven tech companies are set to release their results this week as global economic questions about AI's valuation lingers. Welcome to ABC Business Daily.
I'm Carrington Clarke. And I'm ABC Business reporter Daniel Ziffer.
Dan, there is a lot on the economic plate this week, including the crucial inflation data. Now, this gives us an idea of how much we think prices are increasing in the Australian economy. Now, people know that they're feeling that things are going up, particularly when they go to the petrol bowser, even if we have seen a kind of trending down of the price of unleaded in recent weeks.
But this data is crucial, isn't it? Because it's the first time we get robust data about how the war in the Middle East has impacted prices here in Australia.
Yeah, some people might be a bit confused, like, hold on, didn't we get inflation data recently? We did. We had some at the end of March, but it was essentially worthless because it covered February before this conflict had really kicked off. So it wasn't a real representation of what was happening in the economy at the time that it was released.
This one will take into account the massive inflationary pressure that has come from soaring fuel costs, even though that's more kind of the bowser. I don't know that we've really felt the full impact of those heightened fuel costs, that less supply in the world, because most big companies, for example, the airlines and others, they buy stuff well ahead of time.
they're not buying petrol at the pump in the same way as we do and affected by those instant shocks.
So we're still going to see more of that flowing down the line in the coming months and probably perhaps even to a greater extent because things that we haven't thought of yet that we've still got storage of now, things like fertiliser, plastics, all these kind of petrochemical products, we've got them now. the pressure is going to be in the coming months.
So it will be a fascinating read to see what happened at the very start of this conflict and the pressure that will be ongoing.
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Chapter 3: How will inflation data influence the RBA's interest rate decisions?
rate hikes. There are others like Westpac, for example, who believe that we could see two further interest rate hikes. Now, this is getting into that real tension at the heart of the difficulty for the Reserve Bank, which is that on one hand, the price rises that they are seeing are too high for their comfort. They are targeting, remember that crucial band, between 2% and 3%.
But they do not want to hike interest rates in such a way that it leads to large-scale unemployment. It leads to
Chapter 4: What is the significance of the upcoming results from the Magnificent Seven tech companies?
a lowering, a massive lowering of growth. But it is so difficult for them to get this right. What I'm so fascinated by is trying to work out how quickly they will be able to assess the so-called kind of second round, third round impact. Because you're right, we've seen obviously an increase in the price of fuel. We've seen impacts when it comes to things like airline tickets.
We've seen some of the most immediate impacts, but it's those second and third round impacts where we start to see groceries start to rise a lot and then even services rise in price. as this kind of ripples through the economy. How quickly do you think the Reserve Bank is going to be able to make a determination of how high they need to go to try to get this under control?
I mean, you'd love to be in the room. To remind people for the look at inflation we had before this conflict took off, the Consumer Price Index, the CPI, rose 3.7% for the year to February. The trimmed mean, which is the RBA's preferred measure, which excludes volatile items, that was 3.3%. Now, that's still higher than the RBA wants it, which is 2% to 3%.
The flip side, and I guess probably the counterfactual that some of those economists are working on, is that the rise in fuel costs is already a handbrake on spending. We have consumer sentiment about as low as it has been. We've got this handbrake on consumer spending. The costs that are coming are from a supply problem, not from a demand, there's too much money in the economy problem.
So it will be fascinating to see the decision they come to, how close the votes are, if there's differing sides of the argument here about whether getting 40% of Australians who have large housing debt and another 30% who rent and
whose rents are subject to mortgages, so many of them will go up as well, having them ship more money to their banks every month to pay off housing debt will lower inflation. Or if the inflation is baked in from other things, far beyond their control, from a conflict literally on the other side of the world, they can't affect as Australian consumers.
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Chapter 5: How is the current inflation affecting consumer sentiment in Australia?
And whether all of those costs are actually going to crimp spending so much that inflation tempers itself. And the RBA has a tough job. They try and maintain what they call full employment. They are trying to keep inflation under control. And given that, last time I checked,
They have been in the target band that between 2% and 3% for just one in five of their past 40 meetings gives you a sense of how difficult that task is to keep inflation where they say they want it.
So people are about to face a deluge of numbers when we get the inflation data released. And it is actually quite difficult to make heads or tails of it because we're going to get multiple numbers that seemingly sound like the same thing, but are slightly different things. And that's because the Shane Bureau of Statistics, the Reserve Bank actually relies on the ABS releasing this data.
We're getting both monthly data for March, but we also get quarterly data for which takes into account the three months. And so we'll get both headline figures. So this is the rate overall that things are rising. And in some ways, that's kind of what people feel because it takes into account also things like the rise of petrol costs and things that are seen as more volatile.
You'll get those headline figures. And there's a little bit more variance in this from what I can see from different economists about how high it might be. particularly for the monthly figure. Some predicting it could even be the year-on-year figure could actually be above 5%, I think I saw from the AMP, whereas others are saying ANZ I'm looking at is up to 4.7%.
Then you have the trimmed mean number, which, as you say, is the preferred number that the RBA looks at, and that is because it takes out some of those volatile numbers because they think it gives a better perspective on actually the inflationary pressure at the core of the economy. Now, the RBA is more interested in the quarterly figure, is my understanding.
And they're looking at that to see whether or not the trend is in the right direction. All economists agree it's going to be well above the target band of between 2% and 3%.
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Chapter 6: What factors are contributing to the rising inflation in Australia?
What they're hoping to see is that it eventually starts to come down. Now, that's obviously very unlikely at this point because we have this major energy shock at play and we've got that flowing through. But that is what they'll be trying to focus in on, and that's why people will be looking so closely at these numbers and looking at what's kind of driving these numbers higher.
Now, it is possible that we get a number that's completely shocking and is much lower than people expected. Maybe that does change the RBA decision-making. But as you also point out, The last RBA decision was line ball. It was just one swing vote on that board that determined that they hiked interest rates at that point.
Now, Michelle Bullock says, everyone agreed that we need to hike interest rates. It was just a question of when, though other people have pushed back on that concept because obviously the decision is either to hike or not hike. It's pretty binary. Exactly.
But the question will be whether or not that swing vote potentially is the person who says, wait a minute, let's wait until we get the next data.
But the consensus from economists when you read through there, through most of the notes that I've read, says they will be too concerned about getting behind these price rises because it is much harder to deal with the inflationary genie once it's out of the bottle.
The votes aren't linked to people. We don't know which way different members go. That's because this is Australia and we're not that into accountability.
But what we will get... In fairness to them on that, Dan, I think the idea is that they do not want people to be individually targeted if they are the people hiking interest rates. I mean, I can understand how fired people get.
There's probably... Oh, you're so sensible. Yes. There is there's reasons why they don't. There are reasons why you could actually say, look, you know, this is why they think it is. You know, actually, we do have actually better accountability than we ever did after a large scale review of the RBA a few years ago.
And Michelle Bullock now holds a press conference afterwards where people like Carrington can go and ask impertinent questions, which is always fun and does actually give some insight. They were late last time. Inflation got away for them. They were late. They won't be late again. They are an inherently conservative organisation.
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Chapter 7: What predictions are economists making about future interest rate hikes?
It was about 7% of their workforce in the United States was eligible for this. And again, it was a way, I think, of them trying to reshape their workforce to give themselves some more flexibility, while perhaps not being as cruel as some of the kind of harsh cuts that we were seeing at other companies.
And a particularly hard thing to justify these quite severe cuts at times when companies' share prices are going up and up and up. You would think that it's a harder argument to make than when a company's kind of struggling. But there is, on one hand, huge investment going on in these companies into artificial intelligence. But yes, they are cutting in other parts.
Well, investors are sickos, and they love announcements of job cuts because it reduces the amount that companies are spending. We've had really big ones. Meta says it's going to cut about 10% of its workforce. That's about 8,000 people. Microsoft, that big announcement. We've also had them this year from Block and WiseTech Global and Oracle, similar job cut announcements.
It's difficult to discern how much they are directly related to AI displacing those jobs or whether it's the desired investment in AI and where the companies see themselves going, where they see the power of these models and products disappearing. to be able to replicate or replace the work that was done by humans. I think there's a real mix there.
It's very difficult to disentangle in each of these separate companies what's behind these announcements, but it has been an absolute rash of them, even with these companies sloshing around, outlaying and earning money. almost more money than they ever have before.
Yeah, absolutely. Well, that is it for today's episode of ABC Business Daily. We'll be back with another episode tomorrow. And if you haven't already listened to it, you should go and listen to our latest Fuelcast episode. It's already in your feed from this morning, right before this one. Make sure you're following us on ABC Listen or wherever you get your podcasts.
And if you'd like to send in a question, you can email abcbusinessdaily at abc.net.au. Thank you so much, Dan. Speak to you soon. Wonderful.
All the best.
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