00:01We've got one of the strongest rates of population growth amongst the developed world, so high
00:07rates of immigration is helping underpin those GDP numbers.
00:10Now output per capita, productivity growth, those sort of measures are not as strong.
00:16But look, it's not surprising at all we're one of the fastest growing economies, we've
00:21got population growth as strong as it is.
00:24So there are people out there who might say that's all well and good, hearing the fastest
00:28growing economy, but for me, it's a struggle because everything's so expensive.
00:32If the economy is doing so well, why are so many people doing it tough?
00:37Well again, obviously cost of living pressures remain with us.
00:42We had a big increase in inflation coming out of COVID.
00:46The rate of inflation has eased, but the level of prices is still quite high relative to where
00:52we were before COVID.
00:54So that decline in real incomes is still bearing down on many households.
00:59The Reserve Bank has obviously recently lifted rates.
01:03Interest rates are still above where they were a few years ago.
01:06So many of those with a mortgage are feeling the pain as well.
01:10So yeah, overall growth is holding up.
01:15Unemployment in Australia is still relatively low, but the squeeze on households persists.
01:20And part of the strong growth is the fact that it's keeping prices up.
01:25And so what's the key to bringing that inflation under control then?
01:29Look, I think, you know, the overall rate of spending in the economy needs to slow somewhat.
01:36I mean, what we have seen is public demand is still running stronger than private demand.
01:41In the last quarter, we had public demand still very firm.
01:45I think it was up 0.8% in the quarter, private demand only up 0.4%.
01:50And just set that out in layman's terms for us.
01:52What does public demand and private demand mean?
01:55So, yes, so public demand is government spending, public infrastructure spending, government spending on services, things like the NDIS, for
02:05example, that is helping underpin demand.
02:08And private demand is consumer spending, private business investment, housing construction.
02:14Look, all of them on and off being relatively firm over recent quarters, but certainly at the moment, the debate
02:22is that with the economy near capacity constraints, that public demand is still, you know, at the moment adding to
02:28that demand pressure.
02:29So, do you think the government needs to pull back on spending?
02:34I think, yeah, at the moment, given we're pressing up against capacity constraints, obviously inflation remains above the RBA's target
02:42band.
02:43It is, I think, it would help if the government was able to rein in spending to take pressure, because
02:50basically, if the government doesn't do it, the Reserve Bank will force more of that adjustment on the private sector
02:55through higher interest rates.
02:57So that's a choice we face.
02:58So, what's likely to happen with interest rates off the back of this?
03:02Look, actually, I think that the headline number was strong, but if you actually peer beneath the surface, overall spending
03:09actually slowed a little in the quarter.
03:10It was very strong in the September quarter, slowed back a little in the December quarter.
03:15So, I think if we saw another very strong gain in demand in the quarter, the RBA would have been
03:22under pressure to raise rates at the next meeting this month, later this month.
03:25But I think the fact that demand did slow suggests they could hold off at least for a while longer
03:31and wait for the important inflation results in April and maybe then think about raising rates in May.
03:38But I think the numbers today don't justify the RBA going as early as later this month.
03:44Are you still expecting an increase at some stage?
03:47Yeah, look, my base case is they will raise rates in May.
03:51I think the March quarter consumer price index we get in late April is likely to show inflation still uncomfortably
03:57high.
03:58And, yeah, on the basis of that, they'll nudge rates up at least one more time.
04:03Every time the Reserve Bank Governor holds a media conference, we hear about the importance of improving productivity.
04:09And that was a bit of a bright spot in these numbers.
04:11Yeah, we did see productivity lift.
04:14So, that's true.
04:16We are starting to see a bit of a – and that's part of the rebalancing of growth.
04:20We are starting to see some areas of private demand, business investment picking up, for example,
04:25and the productivity associated with that is better than what we've seen in some of the services sector.
04:31So, yeah, if there is a silver lining here is that maybe productivity is picking up.
04:36And so – and as a result, labour cost pressures, I mean, will moderate.
04:41So, you know, we're getting more bang for our buck, so to speak, from worker hours.
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