00:01Well, I think there's been upside risk to inflation and inflation has been elevated
00:06for an extended time and so I think the RBA has pulled the trigger and put the cash rate
00:12up to try and bring inflation down over time to the target ban.
00:17The Governor in the press conference did call out three key themes.
00:21One was the Middle East conflict and the fact that that is now running for longer than anyone
00:26expected and might continue to run for quite an extended time and that's putting up energy
00:31prices as well as other input costs and there's a risk there that then businesses pass that
00:37on to other businesses and consumers and that's already happening and in fact in the media
00:42statement the RBA also said for those businesses that haven't done so they're considering passing
00:48on those costs.
00:49The other theme was around AI related investment which is quite huge.
00:54So we're seeing costs increasing for technology particularly related to the AI theme and I
01:03guess another key point is that our major trading partners have had quite resilient growth and
01:09that's had a lot to do with AI investment even whilst the Middle East conflict's been going
01:15on.
01:15And then the third theme is really that there's capacity pressures.
01:18And why is there continuing domestic demand in Australia when we keep on hearing from
01:24so many people that the budget's tight already?
01:27Well part of the problem is that productivity is so weak in Australia and so that means that
01:33the speed limit for the economy is lower than what it was in the past and so that means economic
01:38activity can hit that speed limit sooner.
01:41The latest national accounts for example showed that the economy grew by 2.1% over the year to
01:46the June quarter.
01:47That's still faster than the speed limit because productivity acts as a bit of a handbrake.
01:52Even though households fill out the consumer confidence surveys and suggest that they're very pessimistic
02:00about the outlook, household spending has still remained relatively resilient although data today
02:07that was published did show that growth was quite modest for last month.
02:13So at least you know that might be encouraging in terms of household spending you know might
02:20be slowing and that will help bring down economic activity and with that inflation pressures.
02:26And there's always a political debate around these decisions.
02:29What do you make of the way the government is handling that balancing act between encouraging
02:35growth but trying to keep inflation under control?
02:37Yeah I guess that's a big talking point around government spending.
02:43It's only really one part of the equation I'd say because as we know capacity pressures have
02:53been caused by the fact that you know you've got the Middle East conflict, you've got the capacity
02:58pressures which include a labour market that is still quite tight.
03:02There's also a housing shortage that's ongoing, there's inflation that's also been running for
03:10a longer time above band and the longer that continues the more difficult it is to bring
03:16down inflation into the band but certainly a restraint on government spending could help ease
03:24inflationary pressures.
03:25And when we get these decisions that come through the focus is obviously on the people who are doing
03:30it tough in terms of people with mortgages and poorer people but there are other people with
03:35savings who will benefit from this.
03:37Can you talk us through the people who will actually benefit?
03:40Yeah that's right, the cash rate increase or the cash rate itself is quite a blunt instrument
03:46and so that means there will be segments of the population that will feel it tougher.
03:54In particular those that are on a variable mortgage will feel that almost immediately.
03:57But all parts of the economy or all households really feel the impact of higher inflation.
04:04We see that in our everyday, day-to-day bills and that's why it is important for the Reserve Bank
04:11to try to bring down inflation by putting interest rates up because the longer they let inflation
04:18run above the band, the greater the risk that they might have to do more tightening down the track.
04:23Now those that have cash in say a term deposit or cash in a product that earns interest will
04:31now see themselves earn high interest so relatively speaking they would be a beneficiary.
04:39Those that don't have much debt at all or no debt would relatively speaking be better off.
04:46However, I think the reason why they've had to put up the cash rate because you've got
04:52high inflation means that really all households are feeling the impact of that higher cost of living.
04:58You've got 60% of all those that are absolutely less so that you might lose.
04:58You're looking forward to seeing and have a lot of people who want to do that than that.
04:58You're looking forward to getting an opportunity to see.
04:58So, that's the end of that 1.
04:59So that's the end of that 2.
