Q+A: Has the Reserve Bank won the battle against inflation?
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What is the main topic discussed in this episode?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer. The Reserve Bank has been handed some welcome news. Underlying inflation came in below expectations in the June quarter, prompting markets to scale back the likelihood of another interest rate rise. In the next few months, while the numbers were encouraging, there are still pockets of the economy where inflation remains stubbornly high. Warren Hogan is Managing Director of EQ Economics and Economic Advisor at Judo Bank. Warren, welcome back to Fear and Greed Q&A.
All right. Thanks for having me on the show once again, Sean. What do you make of the numbers? They're amazing. They're not great.
How did the June quarter inflation surprise affect RBA expectations?
Let's just get that right. We've still got inflation and everything. But given the sort of concern and severity of the shock we got to the global economy from the conflict in Iran and the shutting of the Persian Gulf, Obviously, there was the headline spike in petrol prices that sort of caused inflation to go higher in March. But the bottom line is, is the amount of pass through of that shock has been remarkably limited. So we've got core inflation or the underlying inflation pulse rising. You could argue slowing over the first half of 2026 compared to the second half of 2025, which is really remarkable. But it also highlights that we had quite a bit of inflation in the economy in late 2025. But yes, the market is taking a mechanistic view of this, and it's all about the next RBA meeting for markets and most commentators.
But the numbers do highlight that we still have underlying inflation well above target, and it's sort of drifting higher still. So we've still got this inflation problem. It's just the RBA is probably going to have some breathing space for another few months.
Okay, a fair bit to unpack on what you just said there. Let's start at the end of last year. We had more inflation than we thought, and a lot of that was capacity constraints in the economy. I presume that hasn't changed much. It's more the demand side has come off the boil. Is that right?
Yeah, that's exactly it. And that's, I think, what's concerning and what the insight to take from these numbers, along with the other bits and pieces of information we've had over the last couple of months. It really does actually, as you said, highlight how much inflation we got at the end of last year. We had core inflation of 0.9 and 1% for the two quarters, which is over 4% annual. And I think really what it shows you is that the margin pressure and the persistence of cost pressure is it sort of it was unleashed as soon as there was some sort of life in in in the private economy as soon as the consumer started to show a bit of mojo and businesses of spending again late last year then prices had to be passed through because margins have been under pressure the the irony of this is that the cost pressures for business have not eased at all they're intensifying if anything but the degree of pass-through has moderated
And therefore, the margin pressure on business is quite severe in the first half of the year is my conclusion. And it's worrying because at some stage that margin pressure stops being market level or normal competitive profits down to no profits, to losing money, to shutting businesses. And there's obviously all the iterations in between. Where we're at right now, I don't know. But one thing we do know for sure is that if we see a revival of demand in the economy, which no one's talking about, but if we did, then we would see that pass through again, like we did over the second half of 2025, because the cost pressures have been very strong in the first half of the year. And we know that's happening as well.
Okay.
Why does Warren say the June data are 'not great' despite easing market fears?
So in this first half of the year, has demand come off the boil because of the three interest rate rises we've had primarily, or is it more about oil prices? What's your take on that?
Look, it is quite hard to be too specific about it. I think there's no doubt that everything's gone into the mix.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:48
2
How did the June quarter inflation surprise affect RBA expectations?
0:48–4:01
3
Why does Warren say the June data are 'not great' despite easing market fears?
4:01–4:51
4
Which shocks limited inflation pass-through after the March petrol spike?
4:51–11:57
5
Has demand cooled mainly because of recent rate hikes or other factors?
11:57–12:06