Latest / Best of Business / Kelly Eckhold: Westpac Chief Economist challenges the Reserve Bank's cuts to the Official Cash Rate

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Kelly Eckhold: Westpac Chief Economist challenges the Reserve Bank's cuts to the Official Cash Rate · Best of Business

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  Speaker 1: You're listening to a podcast from News talks'd be follow
• 0:12
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• 0:16
  Speaker 2: Another of those fascinating economic days today with the release
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  Speaker 2: of the Q three inflation read a couple of things
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  Speaker 2: about it. Is it three or above? And number two?
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  Speaker 2: Has it peaked? The last number we had for Q
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  Speaker 2: two to June was two point seven. Kelly Echold, as
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  Speaker 2: West Paxtief economist, of course, is back with us. Kelly morning,
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  Speaker 2: He Mike, what's you call?
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  Speaker 3: Well, we think it'll be a three percent annual right,
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  Speaker 3: one percent for the quarter. That's more or less what
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  Speaker 3: the Reserve Bank's got unless you go down to the
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  Speaker 3: second decimal place. Key here is is this the peak?
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  Speaker 3: As you pointed out.
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  Speaker 2: The psychological effect of anything with the three in it?
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  Speaker 2: What's your assessment of that? Do we we're already in
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  Speaker 2: a funk? Does this sort of sinkers?
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  Speaker 3: Well? I think people already know that the cost of
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  Speaker 3: living has been rising quite significantly. I mean a nice
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  Speaker 3: little factoy there inflations back inside the target change, but
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  Speaker 3: the level of prices is more than twenty percent high
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  Speaker 3: than it doesn't start of the pandemic. So people know
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  Speaker 3: that they've got less money in the back pocket. The
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  Speaker 3: Reserve Bank's kind of interested in do people think that
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  Speaker 3: they need to get a bigger pay rise? Are their
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  Speaker 3: inflation expectations going to rise? So far they seem pretty
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  Speaker 3: senguente about that.
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  Speaker 2: See, this is the interesting thing for me, isn't it.
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  Speaker 3: So?
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  Speaker 2: So say we get to three three point one, whatever
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  Speaker 2: it happens to be, and then we start talking about this,
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  Speaker 2: but it's going to come back. What's the stuff that's
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  Speaker 2: driving it? Though? How's that come back? Your council rates,
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  Speaker 2: your insurance bills, your power bills, they're going up and
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  Speaker 2: continuing to go up.
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  Speaker 3: Yeah. Well, council rates is obviously the big bug bear,
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  Speaker 3: and that's going to be the big driver of the
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  Speaker 3: CPI this quarter because it is the quarter where it hits.
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  Speaker 3: The good news there is that the amount of rates
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  Speaker 3: increase we've got in for this year is a little
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  Speaker 3: bit lower than it has been in the last couple
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  Speaker 3: of years. But I think you're right to point that
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  Speaker 3: what we really need to see evidence here is that
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  Speaker 3: a whole lot of the services sector prices in the
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  Speaker 3: CPI to come off a bit in line with this
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  Speaker 3: weaker economy, and hence you know, we're really looking to see,
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  Speaker 3: is there sides that core inflation is dropping in a
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  Speaker 3: which case that forecast that inflation heads you know, at
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  Speaker 3: least into the low twos again these few quarters, is
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  Speaker 3: going to be right.
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  Speaker 2: Yeah, So if the RB are expecting this, do they
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  Speaker 2: look through it as much as they look through anything,
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  Speaker 2: And if they were going to go twenty five, they're
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  Speaker 2: still going to go twenty five. In other words, this
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  Speaker 2: won't spook them.
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  Speaker 3: Well, I don't expect this to spook them because it's
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  Speaker 3: in their forecast, even if it was a bit higher,
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  Speaker 3: and if the reason was a temporary or one off factor,
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  Speaker 3: I don't think there'll be that bothered because their key
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  Speaker 3: message here is that they think there's enough excess capacity
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  Speaker 3: in economy, which is another word of saying the economy
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  Speaker 3: is weak enough that they can focus on that and
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  Speaker 3: trust that that will bring things back. And you know,
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  Speaker 3: the news we've got on the growth impulse in the
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  Speaker 3: certain fourth quarters hasn't been that encouraging to.
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  Speaker 2: Be No, indeed, not twenty five and done.
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  Speaker 3: Do you think, Well, I think they would like to
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  Speaker 3: get everything done before Christmas. So I've been telling clients
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  Speaker 3: that I think they'll be dicing up between twenty five
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  Speaker 3: and fifty just to finish off for Christmas, and then
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  Speaker 3: hopefully next year get the rates to where they are,
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  Speaker 3: leave them there for as long as it takes. Hopefully
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  Speaker 3: it's not very long, but we'll see, all.
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  Speaker 2: Right, Kelly, nice to talk to you. Appreciate it. Kelly
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  Speaker 2: you Cole, who's the Whishpac Chief Economist.
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