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Chapter 1: What are the key economic events happening 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 and analysis on LinkedIn as well. Stephen, good morning.
Very good morning, Michael, and what a week we've got. What a massive week. Do you lose sleep on a weekend leading into this kind of thing? Because a week like this is a bumper week, right? You've got the RBA meeting today and tomorrow. We've got some other bits and pieces, household spending, building approvals.
Chapter 2: How does the RBA's meeting impact interest rates?
But really, the RBA, and when it's such a big and much anticipated meeting, there is... There is so much riding on this one, right?
So much riding on it. Now, I don't lose sleep, but because it's one of these things, it's an evolving analysis that from the last meeting, which is now eight weeks ago, it's a long time since the last RBA meeting, we've had so much news. And with each bit of news from the international economy and international geopolitics, plus our own domestic data here,
You think they might hike a bit more, they might not. Oh, yes, they will. Oh, maybe they won't now. And so you get this evolution of ideas coming through from news and events. And that's what makes it so interesting. And right now... The troubling thing that our friends at the Reserve Bank Monetary Policy Board meeting today and tomorrow will be confronting is a real checkerboard of news.
On inflation, you would hike. On the growth outlook and the risk for unemployment, you'd pause. And that's where sensible people can have a really hearty discussion. The end point will be a really difficult decision to make, whatever they do.
Well, let's look at one of the big pieces of information that they will be taking into account, and that is the March quarter inflation figures that we received last week. week, right? And the timing of this meeting has worked well, right? Because in the past, we've had kind of where it's just slightly out of alignment.
The RBA meeting is just before the release of info, but at least in this particular case, they've got this heading into it. What did you make of the CPI data from last week? Yeah, it's one of those ones where
If you're expecting to get punched in the nose three times, you're going to get punched in the nose twice. It's a good outcome. So we had that punch in the nose from the inflation numbers. They were high, unambiguously. The petrol effect was there in the headline figure. So the annual growth of 4.6%. Yeah, that's really high. But a full percentage point of that was just petrol.
And so that was the shock that we've been talking about and it's volatile and it's probably going to be down in the month of April when we get those numbers in a month's time. So what we are focusing on, I think what the board will focus on too, the RBA, is the trimmed means.
So you take out all these volatile items and there's a legitimate case to take out petrol because just as quickly it's gone up the last couple of months, it could well come down. So you don't necessarily hike because of that. However...
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Chapter 3: What recent inflation figures should we consider?
So the numbers had been very, very encouraging. But I think the point that's being made more broadly is that these are just building approvals. They haven't yet sort of got the backhoe digging the foundations or anything like that, let alone building a building. So we do know that from time to time, the building approvals can be postponed and that's the risk that's happening right now.
Okay. And so that might be the case that the building approvals could still be quite good, even though on the ground, when the construction actually happens, they're starting to see the slowdown. So you can almost have a bit of a mismatch until it starts to catch up.
Yeah. Exactly the point. So we want to see more building approvals. Yes, we want to see that strong. So again, there's that pipeline of activity of new construction, which is there, which is essential. And I think that's important. We've just got this grey area emerging now. Are the building companies saying that, look, we can absorb a few of these costs?
Maybe the skill and labour shortage is not quite as bad. So yeah, we can get away with doing a little bit more in terms of adding to the stock of dwellings. But there's a real risk brewing that just when we've got the building approvals, we're about to build more dwellings. That thing that we all really want to see for affordability and these other issues.
We've run into a hurdle that we didn't really see coming. And that's a really disappointing thing for housing construction. I remain upbeat. But if these cost pressures, labour shortages continue or get worse, then we could see that faltering in the second half of the year.
And the other thing this week, household spending. I mean, given interest rate hikes, given the cost of petrol, These are going to be interesting numbers.
They're going to be a little bit crazy because, and the reason I say that is that they include petrol. And what were people doing in March? They were running around filling up their cars. So in a funny way... We could actually see, and I noticed that a couple of the banks have got their internal cash flow data showing that we could see a strong result for household spending.
Alas, it'll all be petrol. So another one, like the inflation numbers, take out the petrol spending and you'll get probably a fairly moderate growth. As you said, the rate hikes have been having an impact and other than petrol, we're not spending as much in other parts of the economy.
It is a massive week. And then with the budget next week, this is a very, very busy month May is shaping up to be.
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