Chapter 1: What is the main topic discussed in this episode?
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Well, the inflation numbers are in and data from the Australian Bureau of Statistics shows us that CPI fell in April, thanks in large part to easing fuel costs. But underlying inflation remains stubbornly elevated. So what should we make of all these numbers and how might they shape the RBA's moves on next month's interest rate decision? Welcome to ABC Business Daily. I'm Daniel Ziffer.
And I'm ABC business reporter Nassim Khadem.
Sona said we both got invited back, so it was obviously OK.
I hope so, but I always love doing podcasts with you, Dan.
It's lovely to be here with you. Let's get right into it. Nassim, the latest inflation data is here. The figures obviously look backwards. This is backward-looking, rear-vision mirror stuff. But the data released from the ABS today gives us a snapshot of the Australian economy in April. Let's kick things off by running through the numbers. What happened with headline inflation?
So the headline rate rose 4.2%. Now that's down from 4.6%. And then the trim mean, which is the preferred measure of inflation, that rose slightly. It was up 3.4%, up from 3.3%. So that's still well above the RBA's target band of 2% to 3% that they prefer.
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Chapter 2: What does the latest Consumer Price Index data reveal about inflation?
So prices are still going up, but they are going up more slowly. With that trimmed mean that takes out some of those volatile items, it is higher than last month. That trimmed mean that the RBA looks at when it is examining what's going on in the economy, it's at 3.4% for the 12 months to April. It wants it between 2% and 3%. So what are we seeing here? What do these tell us?
I mean, as you just said, Jan, it's above the RBA's target band, but it is slowing. It's showing an easing in inflation pressures. And together with the recent lift in unemployment, which you and I spoke about last week, this suggests that higher interest rates may actually be starting to slow demand.
It's more likely that the RBA will hold now next month and wait to see whether the three rate hikes that it's done this year cools inflation over time. So... Where inflation and rates then goes, of course, depends on where, you know, whether energy prices fall back, whether global supply disruptions continue, all that sort of stuff.
So you touched on it there. We're talking about annualised numbers.
Chapter 3: How might inflation trends influence the Reserve Bank of Australia's rate decisions?
We're talking about the figures for the year to March or the year to April. There is a difference. We get monthly figures as well. Now, Jim Chalmers, Treasurer, talked about this earlier. making the point that while the trim mean inflation has risen slightly year to year, the month to month figure has remained flat.
So does that speak to the fact that perhaps some of those things are working to reduce inflation?
Yeah, I mean, there's no doubt that rate rises do work to reduce inflation, right? People just don't have as much money to spend. But we've also had a war going on and that war has brought in inflation shocks. And so if that war continues, that could keep inflation elevated.
And, you know, we've talked about this before, Dan, the risk of stagflation where you have slowing growth but at the same time rising inflation. Now, that's a very dangerous situation to be in and that risk hasn't evaporated just yet.
But these rates that came in of how fast prices are growing were lower than expectations.
Precisely. Economists were generally predicting inflation will have eased by about 4.4%. Commonwealth Bank economists, which had the lowest inflation forecast, had expected it at 4.3%. So 4.2% is much lower than most people were forecasting. But predictions also expect that underlying inflation will stay high. And as I've said, that could mean more rate hikes from the RBA.
So the last set of data did reflect that spike in fuel prices. You really saw it. And the data does break down into different segments of what's pushing that cost. We're now seeing an expected drop in power prices. We've discussed that on the podcast this week. When would we expect to see some of those drops feed into ABS data?
We saw yesterday the Australian energy regulator cut the default market offer in several states. Now, this offer basically acts as a safety net or a ceiling on the maximum price that retailers can charge customers. And that is set to see power prices fall in many states across the country. So, you know, it's good news. It means it's not all going one way in terms of inflation.
And are there any other spending categories that caught your eye as you're going through the data?
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Chapter 4: What are the implications of the trimmed mean inflation measure?
And like you and I sit here and we talk about how the RBA thinks this is great. Inflation is slowing. The rate of growth of inflation is slowing. But for people, they're not feeling that. They're just feeling the pressure of not being able to afford to pay for higher grocery prices, higher fuel prices, higher mortgage repayments. People are really feeling that.
And so sometimes I kind of watch what we do, what we report on, and then the world outside. And We can't detach that there are a lot of people feeling enormous price pressures at the moment and this slowing rate of growth in the numbers. They're not feeling that. They're just feeling like, I can't keep up with my repayments. I can't keep up with paying for groceries.
I think especially because this inflation spike has been so broad. Fuel is in everything. It is involved in the transportation of essentially every good. We are unable to quickly transfer off it to a different energy source. It is just going to keep flowing through. And, you know, Iran, the US, Israel, it's a highly volatile situation of which we have very little say over.
Exactly. And when we do stories and we do go out and interview people, they also talk about, particularly businesses, they're seeing their customers pull back on spending. They're already seeing fewer customers come in and they can't hike their prices because their customers are already saying, I can't drive far away to come and get my hair cut anymore, so I'm going to come in less often.
Businesses are also hurting from this. It's not just consumers, but everyone's hurting from these price pressures.
Now, Nassim, something as well that's not contentious at all, tax. The government is expected to flag its changes to capital gains tax in Parliament tomorrow. You've been reporting on this. What should we expect?
Yes, so the government hadn't really expected, they obviously expected a political fight in relation to their capital gains tax announcement, but I don't think they expected so many start-ups and small businesses to come out and do memes on social media attacking them.
And, you know, these are young, savvy business founders that have, you know, millions of, collectively, millions of followers on various platforms like Instagram, etc., So it has been a headache for the government in terms of trying to sell its CGT policy. So today, as we're talking, the government's actually considering whether they carve out startups or small businesses.
One option that's being explored, according to media reports, is a widening of existing exemptions from the capital gains tax. They also might expand the number of Australians who are exempt from CGT. So currently businesses with a turnover of up to $2 million and assets of up to $6 million don't need to pay any CGT if the owner is over 55 and had held their business for at least 15 years.
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