This is Fear and Greed – The Week Ahead, where Sean Aylmer and Stephen Koukoulas discuss the major events, reports and releases that provide insight into the economy this week (with a look back at the events of last week too).
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Sean Aylmer: Welcome to Fear and Greed – The Week Ahead. I’m Sean
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Sean Aylmer: Aylmer and, as always, I’m joined by economist Stephen Koukoulas.
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Sean Aylmer: You’ll find him at thekouk. com and on Twitter using —
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Sean Aylmer: not Twitter, X — on X, using the handle TheKouk. Stephen,
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Sean Aylmer: X user, good morning.
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Stephen Kokoulas: Top of the morning to you, Sean.
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Sean Aylmer: Now, massive week coming up. Before we get into that,
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Sean Aylmer: there wasn’t a lot of data out last week, but
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Sean Aylmer: the Intergenerational Report came out. Jim Chalmers released it earlier
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Sean Aylmer: than we expected, really. We don’t expect them every couple
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Sean Aylmer: of years where Jim Chalmers wants to keep it top
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Sean Aylmer: of mind. I suppose the elevator pitch on that one,
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Sean Aylmer: before we get into this week, Stephen.
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Stephen Kokoulas: It’s a useful discipline on governments, and first the voters,
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Stephen Kokoulas: electorate and people to understand what’s happening in some of
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Stephen Kokoulas: these long run structural issues of the economy. And I
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Stephen Kokoulas: don’t get bogged down in the forecast, the GDP in 2050, because
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Stephen Kokoulas: who knows? Don’t even know what it’s going to be in 2023, to be honest. But it’s more to
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Stephen Kokoulas: say that we do know a few things. We’ve got
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Stephen Kokoulas: an aging population. We’re all living longer, and that’s a
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Stephen Kokoulas: good thing. We know that old people tend to cost
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Stephen Kokoulas: more than young people to look after with healthcare and
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Stephen Kokoulas: pensions and these sorts of things. And that we know
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Stephen Kokoulas: that there’s a couple of other structural issues going on
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Stephen Kokoulas: in the economy. The disability insurance scheme, defense spending’s going to
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Stephen Kokoulas: be probably more elevated in the next couple of decades than
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Stephen Kokoulas: the prior couple of decades.
And when we put all
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Stephen Kokoulas: these into the great big melting pot called the Intergenerational
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Stephen Kokoulas: Report, what it shows is that in the next 20, 30, 40
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Stephen Kokoulas: years there’s pressures on the budget. We’ve got to do
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Stephen Kokoulas: perhaps some more about superannuation policy. And even though it
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Stephen Kokoulas: didn’t speak its ugly word, tax is something that was
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Stephen Kokoulas: not really included. And tax reform is something that, look,
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Stephen Kokoulas: it’ll come around one day or other. But if we’d
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Stephen Kokoulas: have this hugely expensive strain on the budget over many
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Stephen Kokoulas: decades, someone’s got to pay a bit more tax to fund it.
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Sean Aylmer: Okay. We can talk about that for the next 40 years, Stephen.
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Stephen Kokoulas: Yes.
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Sean Aylmer: Now, let’s get into the next few days. Plenty going
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Sean Aylmer: on. Let’s start with economic indicators. The big one this
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Sean Aylmer: week, at least in terms of economic indicator, monthly inflation.
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Stephen Kokoulas: Monthly inflation on Wednesday, yes. And of course, inflation, inflation,
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Stephen Kokoulas: inflation. The three top priorities of the Reserve Bank and
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Stephen Kokoulas: the government and just the business sector more generally. Cost
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Stephen Kokoulas: of living pressures. And we’ve had that monthly inflation indicator
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Stephen Kokoulas: decelerating from a peak of 8.4% in December. Came in
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Stephen Kokoulas: around about 5.5% in June. We get the July figures
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Stephen Kokoulas: on Wednesday, as I mentioned. The market’s looking for another
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Stephen Kokoulas: little dip towards 5%. These jumping petrol prices probably won’t
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Stephen Kokoulas: impact us until we get the August numbers in a
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Stephen Kokoulas: month’s time. But we’re, again, looking for clues that the
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Stephen Kokoulas: broad or the underlying inflation pressures are decelerating. I think
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Stephen Kokoulas: we’ll see them, things like airfare coming down. But we’ll
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Stephen Kokoulas: also have the July, the one July increase in power
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Stephen Kokoulas: prices. So there’s, like most economic indicators, many, many moving
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Stephen Kokoulas: parts. But we’d just love to see the Reserve Bank will be
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Stephen Kokoulas: banking on getting just another step lower in this inflation rate.
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Sean Aylmer: And we’ve also got retail trade and building approval data
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Sean Aylmer: this week. Both very important parts of the economy.
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Stephen Kokoulas: They are indeed, and the retail trade numbers out later
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Stephen Kokoulas: today, Monday. So we’re going to be seeing whether we,
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Stephen Kokoulas: consumers, are still hunkering down. They have been weak for
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Stephen Kokoulas: the best part of seven or eight months now, that
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Stephen Kokoulas: we’re responding to cost of living, as we just mentioned.
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Stephen Kokoulas: We’re responding to the interest rate hikes that have been
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Stephen Kokoulas: delivered over the last 18 months or so. So retail
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Stephen Kokoulas: spending has been weak. And again, the banks who look
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Stephen Kokoulas: at their credit card and Epos transfer numbers are suggesting
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Stephen Kokoulas: that retail spending has continued to soften.
So we’re likely
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Stephen Kokoulas: to see a flat to slightly negative result for July.
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Stephen Kokoulas: Building approvals, gee, they’re choppy. They’re all over the place.
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Stephen Kokoulas: And I guess it’s the precursor to the 1. 2
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Stephen Kokoulas: million dwellings over five years. You’ve got to get a
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Stephen Kokoulas: building approval first before you get a dwelling completion. That
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Stephen Kokoulas: doesn’t kick until July 2024. But we want to see
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Stephen Kokoulas: building approvals starting to move a little bit higher. We
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Stephen Kokoulas: need more houses, as simple as that.
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Sean Aylmer: Houses. We’ve got house prices this week too, don’t we?
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Stephen Kokoulas: We do indeed. Our friends at CoreLogic on Friday put
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Stephen Kokoulas: out their monthly number for August. We know from the
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Stephen Kokoulas: high frequency data that we’re probably going to be getting
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Stephen Kokoulas: another increase, somewhere close to 1% month- on- month. Sydney,
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Stephen Kokoulas: Brisbane doing better. Melbourne and Perth, sort of middle of
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Stephen Kokoulas: the pack and other cities middle of the pack. But 1% month- on-
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Stephen Kokoulas: month increase will be… I think that’s the sixth month
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Stephen Kokoulas: in a row that we’ve had a rise. And from
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Stephen Kokoulas: that low point that we saw in February, house prices
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Stephen Kokoulas: are up over 5%. So even with interest rates going
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Stephen Kokoulas: up, the good old supply and demand. Lots of population
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Stephen Kokoulas: from immigration and foreign students coming here. Not enough supply
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Stephen Kokoulas: because housing construction’s been pretty weak. Prices go up. I
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Stephen Kokoulas: love economics when it works.
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Sean Aylmer: Talking about economics, and economists specifically, Michele Bullock, she’s speaking
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Sean Aylmer: this week, the deputy governor, soon to be governor of
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Sean Aylmer: the Reserve Bank. The topic, though, is on the environment.
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Sean Aylmer: Am I right in saying that?
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Stephen Kokoulas: Yes. And how that’s going to impact the economy. Again,
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Stephen Kokoulas: that was one of the issues in the Intergenerational Report,
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Stephen Kokoulas: if we just backtrack a moment. We know that dealing with
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Stephen Kokoulas: the climate, global warming, the move to renewables, again, have
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Stephen Kokoulas: really big implications for the structure of our economy. So
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Stephen Kokoulas: the Reserve Bank, since Guy Debelle, who was deputy governor
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Stephen Kokoulas: previously, he left around about a year ago. He was
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Stephen Kokoulas: really hot on the topic, pardon the pun, on climate
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Stephen Kokoulas: change. So it’ll be interesting to see what Michele Bullock’s
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Stephen Kokoulas: got to say on the topic, but it clearly is
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Stephen Kokoulas: something that will impact economic activity, impact inflation pressures.
And
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Stephen Kokoulas: again, from a slightly longer run perspective, it has impact
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Stephen Kokoulas: on… Places are too hot to live, then do we
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Stephen Kokoulas: get this situation where people will gravitate to the cooler
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Stephen Kokoulas: areas? Tasmania might be popular in the long run since
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Stephen Kokoulas: it’s nice and cool. Who knows? But we’ll see what
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Stephen Kokoulas: she says and it’ll be a really important marker in
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Stephen Kokoulas: the ground for her as she assumes the governorship in
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Stephen Kokoulas: a few weeks’ time.
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Sean Aylmer: Stephen, enjoy your week.
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Stephen Kokoulas: Thank you, Sean. I will for Sean.
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Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk.
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Sean Aylmer: You can find him at thekouk. com and follow him
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Sean Aylmer: on Twitter using the handle TheKouk. I’m Sean Aylmer, and this is
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Sean Aylmer: Fear and Greed – The Week Ahead.