There are warnings that inflation may not go down significantly for some time following the release of higher quarterly figures.
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00:00Whether you're looking at inflation or the other number out today, the amount of retail
00:05spending in the economy, neither of them were as scary as they could have been.
00:11I'd have said that they'd have been greeted with big sighs of relief from the Reserve
00:16Bank and from the Government.
00:18Australia's been trying to tread that narrow path, slowing inflation without hurting the
00:24economy too much.
00:26There was a risk that today's numbers could say we were in real trouble on that.
00:31But they didn't.
00:33So far, we're still on that narrow path.
00:35Alright, so you say a sigh of relief for Reserve Bank board members.
00:41I assume by that you mean, Chris, for their next gathering next week in Sydney, right?
00:48But at some point, what moves the dial downwards from here?
00:54It's going to be a slow slog on inflation.
00:57In fact, today's numbers underline that we are getting ever so slightly better news on
01:03inflation but the improvement isn't that fast so far.
01:07The next few numbers will look a lot better but only artificially so because of subsidies
01:12and the Reserve Bank will mostly ignore that.
01:16It's a slow fight because we've chosen for it to be slow.
01:19The Reserve Bank has not raised rates as much as elsewhere.
01:23It's trying not to cause too much damage to things like jobs.
01:28And that's quite a juggle and that in particular is a narrower path than the higher rates thrown
01:34at this problem by many other nations.
01:36So it contains risks but yet again today, we dodged some of those risks.
01:42I might go to some future threats that come from fiscal policy that's being delivered
01:49or taken effect, I should say, since that quarter just measured, the June quarter.
01:54Just on the way there though, Jim Chalmers' zigzag theory of inflation reduction, that
02:02is that it's rarely linear in a downwards direction for any country.
02:07True or false?
02:08Look, it is true.
02:10It's also true that inflation showed up later in Australia.
02:13So you'd expect the improvement in it to show up later here too.
02:19It's not that it's a surprise that we've had a slow fight.
02:24As I say, that was a deliberate choice to be careful with what we're doing in Australia.
02:30That's not so much zig and zag.
02:32That's a deliberate choice to take this carefully.
02:36All right.
02:37So since that quarter just measured and published by the ABS, we've of course entered a new
02:42financial year, applying to the May budget handed down recently, with all new budget
02:49incentives within them, $40 billion roughly from the federal government alone.
02:53And that's before we get to, Chris, all the goodies that the states have been sprinkling
02:58around in the form of reduced red Joe, first home buyer initiatives and the like.
03:04Why should we have confidence that collectively they haven't overcooked the spends on the
03:10year we've now entered?
03:12The year we're living in?
03:14And that does remain the risk for Australia.
03:18Inflation at its heart is too much money chasing too little stuff.
03:22And although some of the money that governments are giving us will artificially lower measured
03:27inflation, they actually make the ongoing inflation problem worse.
03:31They give us more money, it's still chasing the same amount of stuff.
03:35And the amount of money that between them, the tax cuts, the new federal decisions to
03:40spend money, the new state decisions to spend money, the total amount getting injected into
03:45Australia's economy is not enormously different from the amount of money that the Reserve
03:50Bank has taken out through rate rises.
03:52So that says two things.
03:54It says we have rearranged cost of living pain.
03:58Things are now better for taxpayers, for those paying their electricity bills, than they'd
04:03otherwise have been.
04:05But borrowers, even if there's no rate rise next week, they're probably going to be stuck
04:09with interest rates that are painful for quite some time.
04:13So that endures.
04:15Is there any confidence element that emerges from looking at the numbers here and recent
04:21monthly figures as well?
04:22That is the people putting their hands back in their pockets phenomenon.
04:28Do you think that's wearing off or might soon?
04:32Those retail numbers were fascinating.
04:34When you remember inflation is high, population growth is relatively rapid, you'd ordinarily
04:40expect lots of extra dollars showing up at the shops.
04:43That's not true.
04:45Our spending patterns are pretty weak, but they are not disastrous.
04:49And again, those big tax cuts means that families, through their tax payments, and retailers
04:56are both about to have a degree of pressure taken off them.
05:00It's everyone else, and in particular borrowers.
05:04We have moved the pain around within Australia.
05:07So we've already addressed, I suppose, the relief that Reserve Bank board members might
05:12feel heading into next month's meeting.
05:16But if you were at that table, what do you think the subsequent decisions through the
05:21tail end of this year start to look like, Chris?
05:26At this stage, you would say no further rate rise in Australia.
05:30But you'd also say no rate cut anytime soon, partly because governments have been feeling
05:36the pain of families and giving them money to help with that pain.
05:40The fight against inflation in Australia will remain in the slow lane.
05:45So it's going to be a while yet before we can put up the mission accomplished flag on
05:50the inflation front.
05:51And does that mean that the next decision after a period of holds could potentially
05:56be a downward one?
05:58I would say yes, but I wouldn't be holding my breath.
06:02I would say you're well into 2025, you know, somewhere around the middle of the coming
06:09year before you got the first rate cut.