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Chapter 1: What are the key economic indicators being discussed this week?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Michael Thompson, and every Monday morning we're joined by economist Stephen Koukoulis to look at the week ahead. You'll find him at thekouk.com, that's T-H-E-K-O-U-K.com, and sharing his views on LinkedIn as well. Stephen, good morning. Very good morning, Michael.
Now, we've got a big week coming up. We get inflation figures for April. We've got private sector capex. We've got household spending. But first, we need to talk about jobs. The unemployment figures last week, there was a sharp jump in the unemployment rate from 4.3% to 4.5%. That is a four-year high. What do we take from that? Is the economy slowing? And I suppose, is it the end of rate hikes?
In terms of what the jobs numbers meant, yes, there was weakness there. And in a sense, it's surprising that it's taken so long for the unemployment rate to move up because we've had basically a couple of years where growth has been, you know, tepid, moderate, you know, not super strong.
And we've had a couple of years where the job vacancies numbers, the sort of leading indicator of unemployment, have been trending down. So that said, it's finally caught up. So yeah, minus 19,000 employment in the month. And as you said, 4.5%. Why that is important is that it's actually increased by 0.4 points in the last three months.
Yeah, we've been stuck at that low four range for quite a while. Now it's four and a half. The RBA is has a dual mandate, so it's got to fight inflation. Yes, unambiguously the case, but it's also now got to keep an eagle eye on the unemployment rate. So this certainly goes into the category of leaning very heavily against further rate hikes. Obviously, we need to see a lot more data.
Is this a blip? Is this a one-off? What happens to the inflation numbers? These sorts of things before we can be certain. But certainly the way the markets reacted last week was to effectively fully price out a June rate hike and to pare back future rate hikes beyond that.
Where do you expect the, if we look ahead six months, 12 months, where do you think that unemployment figure could get to?
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Chapter 2: How did the recent unemployment figures impact economic outlook?
Because we've now had three interest rate hikes, one of them only a few weeks ago now. How long does it take for all of those to filter through and to slow things down if we're already seeing unemployment spiking potentially to 4.5%?
That's a great question. It's one of the ones why I suspect the people were dissenting on rate hikes at the RBA Monetary Policy Board meeting. They're saying, well, hang on, let's wait for the effect to kick into the economy. Now, normally, we know there's a lag of six to 12 months.
It depends a little bit what else is happening in the economy, but let's say it's the shorter end of that, six months. So the February rate hike hasn't had its full effect yet. The March hike Certainly hasn't. And the one that we saw three weeks ago, we haven't got any data on yet, basically, on that one.
So there's a pipeline of monetary policy tightening still permeating its way through the economy, still working through when we get our mortgage repayment schedule or the small business sector gets its overdraft rate sort of bumped up. It takes a few months for people to realize and to acknowledge and to adjust their behavior to that. So Look, I wouldn't hike again on the current figuring.
And it does suggest to me that the unemployment rate with those rate hikes still working their way through that we're going to get an unemployment rate, unfortunately, very close to 5% by the end of the year.
Okay. And of course, these rate hikes, it's all in the name of trying to rein in inflation, which leads us neatly into the monthly inflation figures for April, which we see this week. Now, April is a full month where the Middle East war was happening in the background. What are we expecting to see?
This is the quirkiness of monthly inflation numbers. I'll put the context of the March result. It was up 1.1% in the month, and that was when the petrol shock was impacted. Funnily enough, in April, with the excise cut from the government, don't forget the government's cut off 32 cents a litre, and the price has stabilised.
Anybody just driving around the burbs can sort of see that petrol's lower now than it was a month ago. So we're actually looking for a fall in the monthly inflation rate, driven by petrol. There are other things at play too, of course. There's more to inflation than just petrol. But we're looking for that annual number to go from 4.6%,
back down to about 3.7% as the initial effect of the excise cut reduction impacts on the headline inflation rate. So down to about 3.7-ish percent, give or take, but the trimmed mean holding at around about 3.3%. So excluding petrol and other volatile items, it's still going to be above target, even though we might get a sort of semi-pleasant surprise with the headline figure.
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Chapter 3: What insights can we gain from the April inflation figures?
All right. So wrap it all up. Really, the unemployment figures were a bit of a surprise, but also one that is probably almost overdue. Would that be fair to say? Yeah.
I think that's fair to say that we know that from the recent RBA forecasts and even the Treasury forecasts in the budget, so we've had the two big heavy hitters of the official family, RBA and the Treasury, releasing their forecasts in the last few weeks. They are both forecasting economic growth to slow.
tick that's going to happen they're both forecasting unemployment to increase perhaps not quite as quickly to four and a half percent as we saw last week so that's happening as well and the question now and we alluded to this on the monthly cpi number is when does inflation get back to the target band and um on even the most optimistic viewing of that. It's not until next year.
It's not going to happen this year. We're still going to have three point something on the trimmed mean inflation rate for the rest of this year. And with a little bit of good luck, and perhaps if the economy weakens from these rate hikes permeating through the economy, we'll get the two point something inflation rate in the early part of 2027.
But that's now becoming the main game with an eagle eye on what's happening internationally.
Yeah. Yeah. It is interesting that really one number last week now changes almost the context for everything that we are seeing coming up in this particular week ahead. Thank you very much for taking us all through it, Stephen. Thank you, Michael. That was economist Stephen Kukulis, better known as The Kook.
You can find him at thekook.com, T-H-E-K-O-U-K.com, and on LinkedIn as well, where he shares his views, analysis, and videos and insights. I'm Michael Thompson, and this is Fear and Greed Q&A.
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