Latest / Best of Business / Paul Bloxham: HSBC chief economist on Australia's unemployment rate reaching 4 percent

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Paul Bloxham: HSBC chief economist on Australia's unemployment rate reaching 4 percent · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk zed B.
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  Speaker 1: Follow this and our wide range of podcasts now on iHeartRadio.
• 0:17
  Speaker 1: Andrew Dickens.
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  Speaker 2: Okay, we're joined now by Paul Bloxham from AHSBC to
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  Speaker 2: talk about the New Zealand economy. Welcome to the program, Paul, and.
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  Speaker 3: Happy new Year, Gooday, Happy new Year to you too.
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  Speaker 2: New Zealand inflation data for the December quarter is out tomorrow.
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  Speaker 2: We've already had Brad Olson on from Informetrics. He reckons
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  Speaker 2: two percent. That means the inflation rate is falling. He's
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  Speaker 2: got one of the lowest rates out of everybody. What
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  Speaker 2: do you reckon?
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  Speaker 3: Well, we've got two point one, so we're slightly above him,
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  Speaker 3: but we're below slightly below the consensus, so we still
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  Speaker 3: got inflation falling as well. And I think the main
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  Speaker 3: thing though to keep in mind, inflation looks as though
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  Speaker 3: it's fairly clearly going to be around the center of
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  Speaker 3: the around the center of the Arbiensa's target band and
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  Speaker 3: roughly on target. The key thing to look out for
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  Speaker 3: though will be to look for those underlying measures, the
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  Speaker 3: core measures of inflation and in particular non tradable, so
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  Speaker 3: the part of inflation. That's about domestic inflation, so services inflation,
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  Speaker 3: because that's the part that had been rising still too quickly,
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  Speaker 3: and probably although it will be coming down, will still
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  Speaker 3: be slightly elevated, and it will be that piece of
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  Speaker 3: information really sort of firms up how much the RBNZ
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  Speaker 3: is likely to cut next month. Now you know we
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  Speaker 3: think they're going to cut. We think there are a
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  Speaker 3: number of cuts yet to come from the rb and Z.
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  Speaker 3: You know, inflation is coming down, the economy has been
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  Speaker 3: very weak, and the RBNZ it's got scope to lower
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  Speaker 3: interest rates, but it's just a question of how much
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  Speaker 3: front loading. How quickly do they lower rates. Do they
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  Speaker 3: go fifty, do they go twenty five? And these numbers
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  Speaker 3: are going to help to firm that up.
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  Speaker 2: I think this is a very important point to stress
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  Speaker 2: because when we look at inflation, there are two types,
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  Speaker 2: tradable and non tradable inflation, and the measure that gives
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  Speaker 2: publicized is the average of the two. And so just
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  Speaker 2: before Christmas, the politicians we're starting to say, look at this,
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  Speaker 2: we've got it under control. But the tradeabill was certainly
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  Speaker 2: under two. The non tradable was round about what four
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  Speaker 2: point eight percent, and that is rents and rates and
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  Speaker 2: electricity supplies and all that sort of thing. Four point
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  Speaker 2: eight is still high, and it's too soon to say
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  Speaker 2: we've got inflation under control, that's right.
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  Speaker 3: So this is the non tradable part, is the services part.
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  Speaker 3: It's mostly domestic inflation, and really, when you think about it,
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  Speaker 3: it's the thing that the ARBNS has the most influence
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  Speaker 3: on with its policy leader. So it lowers the policy rate,
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  Speaker 3: lifts it of course sometimes, and that has a bigger
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  Speaker 3: impact on the domestic economy than it does on those
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  Speaker 3: international forces that are driving tradable. So in some ways
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  Speaker 3: you look at services inflation non tradable inflation not just
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  Speaker 3: to assess the momentum in inflation and determine where you're at,
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  Speaker 3: but also because it's the bit that the monetary policy
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  Speaker 3: can have the most influence on. So that will be
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  Speaker 3: the thing really to keep a close eye on tomorrow
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  Speaker 3: when we get those numbers.
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  Speaker 2: Absolutely, also, the government has control because they have the
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  Speaker 2: regulatory control, so they could also help in the battle
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  Speaker 2: against non tradable But that's tomorrow's conversation. Your unemployment now
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  Speaker 2: sitting at four percent, how's the job.
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  Speaker 3: Market, the job market is still strong, and I would
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  Speaker 3: say there's some signs that it's looking as though it's
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  Speaker 3: starting to tighten as well rather than loosen. So you know,
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  Speaker 3: if you recall the obviously the RBA has been trying
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  Speaker 3: to get inflation down as well, and one of the
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  Speaker 3: ways you do that is having lifted interest rates. They've
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  Speaker 3: been flowing the economy and despite the fact that the
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  Speaker 3: GDP growth or growth in the economy has slowed down
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  Speaker 3: quite a lot last year, the labor market has still
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  Speaker 3: continued to be quite resilient. There was quite a lot
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  Speaker 3: of job creation in December, that's the number you're referring to.
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  Speaker 3: And despite the fact that the unemployment rate ticked slightly higher,
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  Speaker 3: it's still actually below the level that had reached in
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  Speaker 3: the middle of last year. It had reached four point two.
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  Speaker 3: It's come down to four. So you know, you've got
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  Speaker 3: a strong labor market and it looks like, well, the
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  Speaker 3: labor market may very well be tightening, so it really
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  Speaker 3: makes it hard for the RBA to think about cutting
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  Speaker 3: interest rates. We've got an inflation print in Australia that
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  Speaker 3: comes out next week, and of course that will play
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  Speaker 3: a role in this In this story, as well, but
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  Speaker 3: of course the RBNZ, the hasn't even enter at lowered
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  Speaker 3: interest rates yet, so this is a question as to
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  Speaker 3: whether they'll be able to go in February.
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  Speaker 2: And final question which you might not be prepared for,
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  Speaker 2: but it's obviously the story of the day. Donald Trump
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  Speaker 2: is n he has threatened by February twenty five percent
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  Speaker 2: tariffs on Canada and Mexico. How might that affect Australia
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  Speaker 2: and Newseum. How likely are we to be hit by
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  Speaker 2: tariffs in a trade war? Well, there's a.
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  Speaker 3: Lot of uncertainty in this story because a part of
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  Speaker 3: it is that although he's noted during the day that
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  Speaker 3: they might put in place tariffs, he's also pointed out
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  Speaker 3: that they're a negotiating tactic. And then so it's not
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  Speaker 3: entirely clear that those are going to be introduced. And
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  Speaker 3: then of course the question is whether it spreads more
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  Speaker 3: widely than that to other countries too, as you say,
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  Speaker 3: and then in addition to that, just to add to
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  Speaker 3: the complications, it's not just about assessing what happens with
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  Speaker 3: US policy, but what do other countries do in response
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  Speaker 3: in terms of their policies. And the major one that
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  Speaker 3: we really have to watch out for in Australia and
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  Speaker 3: New Zealand is what China does in response, because that's
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  Speaker 3: our biggest trading partner, you know. Obviously New Zealand and
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  Speaker 3: Australia very very so strongly driven by the China story.
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  Speaker 3: So it's a very very complicated web to sort of see, well,
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  Speaker 3: one thing happens in one country, it really matters what
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  Speaker 3: happens in other countries as well, and it's this that's
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  Speaker 3: creating quite a bit of uncertainty. Obviously.
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  Speaker 2: I told you a Republican strategist today and you said,
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  Speaker 2: you've got to remember that Donald Trump is a businessman
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  Speaker 2: and when it comes to negotiation, what do you do?
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  Speaker 2: You start high, but you can offer and end out low.
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  Speaker 2: So we'll wait to see what happens. Paul, It's always
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  Speaker 2: a pleasure to talk to you. Thank you for your
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  Speaker 2: time today. Now right, Paul Bloxham. He is the HSBC
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  Speaker 2: Chief Economist.
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