Daybreak Weekend: US PCE, London Climate

This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we
look to the Fed's preferred gauge of inflation how it
could affect policy going forward. I'm Nathan Hager in Washington.
I'm callin kit here in London, where we're looking ahead
to London Climate Action Week.
I'm Derek Prisner looking ahead to the latest reading on
consumer inflation for Australia.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Good day to you. I'm Nathan Hager. We begin today's
program with some key economic data in the US, and
we are getting a lot of it this week. The
Federal Reserves prefer Gage of Inflation comes out this Thursday,
along with an updated reading on economic growth at the
start of the year, along with a slew of other
readings to help us get set for the flood of data.
We're joined by Stuart paul Us, economists for Bloomberg Economics,
and I'd have to think Stuart, after what we heard
from the new Fed cherk Kevin Warsh last week about
the commitment to price stability, the PCEE has got to
be really top of mind. Is that how you see
things right now?
The pce will be top of mind. What's good though,
is that CPI and PPI are used as the primary
input for pce inflation. So even going into last week's
FOMC meeting, central bankers had a pretty good feel for
what we're likely to see in this upcoming personal income
and outlays and PCEE inflation report. And frankly, all the
data that are going to be included in this report,
which covers everything from income to spending to consumer price
inflation based on the person consumption expenditures basket, all of
that data is basically going to affirm the relatively hawkish
stance that we heard from Kevin Walsh and that we
saw in the dot plot released by the broader FOMC.
Okay, So for those who might not be closely keeping
score on what's fed into PCE. I think from the
CPI and PPI data you alluded to, we are still
well above target when it comes to the fed's two
percent rate that it's shooting for.
Right absolutely, so we're expecting to see about zero point
five percent monthly headline PCEE inflation. That's going to boost
the annual PCE inflation rate to about four point one percent. Now,
core inflation is a little bit more tame, about zero
point four percent core inflation on the month, and that'll
boost the year on year rates about three point four percent.
So still a significant overshoot even by the FED preferred measures.
Okay, so how are we looking then at the trajectory
for inflame right now? Now that we have something of
a resolution in the Middle East, the oil is starting
to flow through the strait of horror moves, does that
affect how you as an economist are thinking about the
overall trajectory of inflation at this point.
I actually think that the May inflation readings and the
PC inflation rating is the last real inflation reading for
the month of May. I think that those May numbers
are basically going to be the local peak that we
see for inflation I'm expecting to see some disinflation coming
in June and thereafter. And as you mentioned, you know,
the Memorandum of Understanding, the reopening of the Straight of
Horror moves both help. It should reduce the energy price
pressures that have been boosting headline inflation and even bleeding
into the core a little bit. But beyond that, it
looks like we're past peak tariff passed through. If you
rewind the clock a year, it feels like a lifetime ago. Yeah,
But we were thinking about Liberation Day, we were thinking
about the implementation of tariffs. We saw a major spike
in the average effective tariff rate, which had been boosting
core goods prices over the last year. But now it
seems like that's starting to fall out of the year
on year inflation measures. We're starting to see some moderation
in core goods prices. We're also seeing firms face a
little bit of pushback when they try to pass through
higher core goods prices to consumers. So all told, we
have those two factors in play, mostly on the good side,
where falling energy prices in June and favorable base effects
as we pass through peak tariff pass through are going
to result in a little bit of disinflation in starting
in June and then probably continuing throughout the second half
of the year. That's so, with course, barring any sort
of escalation or re escalation of the war in Iran.
Certainly, I mean that's a key wild card. But with
all that said, Stewart, I think one of the last
times we spoke, you were thinking that the FED could
have a pretty significant room to stay on pause, if
not cut, in the months to come. After what we
heard from the Chairman last week. Is that still your view?
Look, I think that the FED is going to do
their best to sit on their hands. We definitely saw
from the dots we saw from the forecasts included in
the summary of economic projections. We also heard it in
the Chairman's voice and his near singular focus on price
stability rather than employment. All of those looked at a
little bit hawkish. That's certainly the case. I'll have to
concede that point. But one thing that I want everybody
to be aware of, to really fully understand that it's
not clear to us, and it's certainly not clear to
policymakers whether we're seeing a lot of cyclical strength driving
economic activity or where it's mostly just structural transformation. So
if we're looking at the totality of the data, layoffs
and unemployment are low, but hiring is really concentrated in
industries that structural tailwinds, like healthcare for example. Investment is hot,
but that's mostly in industries that are focused on on
shoring and participating in the AI buildout. Residential construction for example,
is really crummy. We saw that just last week with
housing starts. Inflation pressures, as I mentioned, mostly downstream of
Tariff's chips, shortages of the Iran war, and so the
disinflation that we're getting there again, it's mostly because of
shifts in the landscape more so than any sort of
like cyclical factors. So all of those more structural factors
that are affecting the dynamics of the economy rather than
extraordinary cyclical strength, actually do keep the door open for
you know, a cut. I would not be surprised to
see a cut next year. And it all really depends
on the trajectory of the labor market in twenty twenty
seven when that's the.
Case thanks to this Stuart, as always, that's Stuart paul
Us economist with Bloomberg Economics. Let's take a look now,
add some stocks making news the week ahead. I'm Nathan
Hager here with Bloomberg Equities reporter Avalon Purnell, a head
of a few pretty interesting earning stories in the coming week.
We're gonna hear from Carnival cruise lines on Tuesday. It's
gonna be really interesting to hear from them, especially with
so many of the headlines around the Middle East driving
cruise stocks over the last several months.
Avalon absolutely, I mean, the potential end of the Iran
war and fuel costs will definitely be top of mind
for investors as Carnival heads into its second quarter earnings
on Tuesday. Carnival shares have been on a roller coaster
ride alongside other traveling cruise names, to say the least,
since the war started in February. But now with the
US and Iran saying that they've reached an interim agreement
to reopen the Strait of her Moves, sentiment is again
rising in this hard hit sector. Worth mentioning that Wall
Street still remains cautiously optimistic about the stock Schiefel may
have put it best at analyst saying that trading cruise
stocks is beyond difficult because you're trading your view of
whether the Middle East war will end or not. But
they remain buyers of Carnival into their earnings because they
believe the come But he hasn't witnessed any deterioration in
customer spending Bloomberg Intelligence highlighting that investors will look for
insight on booking since March, when Carnival reported that eighty
five percent of capacity had been sold.
Well, like you said, the stock has kind of been
all over the map since the start of the year.
What are we expecting from the options market when it
comes to how the stock could trade off the back
of earnings.
Yes, option data that we are seeing at the moment
is currently implying about a six percent move after those results.
Okay, so we'll be keeping an eye on Carnival Cruise
Line on Tuesday, along with FedEx. Obviously a pretty strong
bell weather for the economy as a whole. But I mean,
this stock has been through quite a few changes lately.
So how's that affecting investor sentiment?
Yes, I mean FedEx, to say the least, we'll be
entering a new era when it reports fourth quarter earnings.
On Tuesday, Justice Mond FedEx completed the spinoff of its
freight division, and it will also be the first earnings
call for Claude Russ, who became interim CFO after John
Dietrich surprise investors by now that he was stepping down
at the start of this month. Investors expect FedEx to
continue executing despite inflationary pressures and rising fuel costs tied
to that war in Iran. Barclay's analysts are expecting solid
retail performance and also industrial expansion this quarter given strong
macro transportation indicators, though it is worth noting that Bloomberg
Intelligence highlighting with the spinoff in the rear view mirror,
FedEx can potentially begin to focus on its longer term
financial targets, like pushing its higher margin businesses and also
improving European results to lift earnings above its twenty twenty
nine target.
And yeah, so it'll be interesting to see how that goes.
But I mean, this stock in particular has been on
a pretty solid run since even before the start of
the year. When you have the FedEx freight business in
the rear view, how is that expected to affect the
performance going forward?
Well, going forward, They're hoping that this will allow FedEx
to hone in on the really quality areas of its
business and help to expand margin. And also worth noting
that options data at the moment is currently implying a
nearly seven percent move after those results, although we will
also hear from that spinoff later that week as well,
so we'll see how the two go head to head.
Oh wow, So even more reason to keep an eye
on FedEx and FedEx Freight. Not only that, on Thursday,
we're going to hear from Darden Restaurants. I mean, every
time I think about Darden, I think about all of Garden,
but I mean I'm always surprised by how many restaurants
are under the Darden umbrella, not just for casual dining,
but fine dining as well.
Yeah, you're absolutely right. Darden is the parent company behind
popular chains like Rufe, Chris Longhorn Steakhouse, and my dad's
personal favorite Cheddar Scratch Kitchen.
But nice.
We will be gaining some more visibility on the American
consumer Thursday when Darden reports for quarter earnings, Worth noting
that they do continue to outperform the S and P
five hundred consumer discretionary sector and investors are expecting the
print to keep that trend going. City Analysts writing that
they expect another solid quarter marked by comparative girl continuing
to outpaced industry. Raymond Jane's expecting a strong fourth quarter,
noting that solid casual dining segment trends in recent months,
and also worth noting that options data at the moment
is currently implying about a four percent move after those results.
Okay, so maybe a little bit of a pop there.
But you have to wonder, when you know, there's so
much talk about a K shaped economy, whether consumers are
thinking about pulling back some on some of the more
discretionary sides of the economy, whether a company like Darden
could see a hit from something like that if people
are thinking, well, you know, maybe I would rather stay
and home and cook for myself rather than go out
for a nice meal for a change.
Absolutely, and I mean it's also not just that. We're
also thinking about the impact of GLP ones on various restaurants. Obviously,
fast dining fast food is going to be very impacted
by GLP ones, especially as they continue to grow in
popularity in the US, But for companies like a Darden, restaurants.
Analysts have said they're really looking for some of these
chains to launch more smaller plates, more chicken options for
customers who are looking for a healthier option on the
menu and are really conscious about protein, and so that
will also be something to be interesting to keep an
eye on as we see the report later this week.
That's Bloomberg Equities reporter Avalon Pernell coming up on Bloomberg
day Break weekend. We'll look ahead to London Climate Action Week.
I'm Nathan Hager, and this is Bloomberg. This is Bloomberg
Daybreak weekend, our global look ahead at the top stories
for investors in the coming week. I'm Nathan Hager in Washington.
Later in the program will get you set for some
important economic data coming out in Australia this week. But first,
the world's facing an uptick in extreme weather events, and
Europe is no exception. While one of the hottest World
Cups on record is underway on this side of the Atlantic,
Europe is enduring a fresh wave of weather warnings and
it's having an impact on climate, resilience, energy security, man
everyday life. For more. Let's go to London and bring
in Bloomberg Daybreak you're a banker, Caroline hepger.
Nathan, would you believe it's the UK, which is rarely
known for hot weather, now faces its second heat wave
in a matter of weeks. Yellow weather warnings have been
issued across Europe and here in London. It's spurring a
national debate about renewable energy, housing policy and even the
role of air conditioning. While the Iraan War has already
spurred inflation across the continent and focus minds on our
collective dependence on fossil fuels, Europe and the world must
now grapple with another cost, the twenty trillion dollars which
Bloomberg Intelligence estimates will have to be spent on extreme
weather over the next decade. Initiatives like the upcoming London
Climate Action Week will look to harness the power of
London for global and local climate action. Sherry Hickock is
the CEO of Climate Impact Partners and says that the
kind of engagement from local government and the business world
is needed more now than ever before. Despite some political
backlash to the idea from opposition political parties, she says
there's actually been a surge in corporate climate investing.
I think what we see in the continued growth in
the commitments is that it isn't a short term gain. So,
as you said, corporate commitments are up seventy two percent.
We have now seventy two percent of the global fortune
five hundred with at least one climate goal. That's three
times since twenty nineteen.
That was Sherry Hiccock, the CEO of Climate Impact Partners
there speaking to Bloomberg. But will that be enough to
combat the panoply of looming threats from heat waves to drought,
to flood risks and food shortages. Tooting me now to
discuss is Bloomberg's weather and climate reporter Joe Wurtz and
Bloomberg's Green reporter Olivia Rudgar. Welcome to both of you,
and thanks for taking the time to speak to us. Joe,
let's start by thinking about the heat wave looming in
Europe right now. What does it mean for the environment
and for the economy?
Right So, that heat wave is building right now in
France really is kind of where things are really starting
to cook over there. And this is a one of
these high pressure systems that we saw earlier in late May,
so a very similar setup and they are looking at
some really scorching temperatures, and also day after day after
day of really warm nights too. They call these tropical nights.
These are when temperatures don't dipple of twenty degrees at night.
We could be in for days of that in France
and in Paris there, and you know, we're already seeing
some market ripples from this. You know, the rivers in
France are starting to get warm. They use those rivers
to cool nuclear plants, and when those river temperatures get hot,
they can't produce as much nuclear energy and they have
to limit outputs. So EDF and France has already said
they might have to start limiting power at these plants,
and so the effects of this heat are already starting
to trickle in.
Yeah, gosh, that is surprising, isn't it that the impact
is so significant. I mean, we know that productivity drops,
for example, when it gets very hot. There's also the
risk of fire of wildfires in Europe, which we often
see over the summer, and then deaths, you know, increase
as well because of the heats. There are lots of consequences,
aren't there for people. There's also there've been quite a
lot of talk about the al Ninia effect. Now that
is actually not very familiar to a lot of people
in Europe. It's something that affects other parts of the
world more. That could shave trillions of you know, very
fragile global economy. It's expected to be really really strong
this year. Why and what is it?
Yeah, this is a lot of people aren't familiar, really
thin because it's actually pretty far away geographically from Europe.
This is an area of the Pacific Ocean that is
warming up. It warms up on these kind of seasonal cycles,
and we're in for one of these seasonal cycles. But
it's happening on top of warming that has already occurred
as the climate's getting warmer and through climate change. And
the projections are that this only could be you know,
potentially unprecedented. This we're looking at a potential record breaking heat.
And this weather pattern, even though it's cyclical, you know,
it has global ramifications. It affects weather patterns all over
the world. It shifts rainfall, increases heat in some areas,
makes it less rainy in some areas and more rainy
in others. But this is happening on top of inflation
that's already occurring largely due to the war in the
Middle East, and you know, big impacts especially in food
systems and agriculture, drought, wildfire, severe flooding in some areas.
So yeah, the last one, the one in the last
big one in twenty fifteen and twenty sixteen was like
seven point six trillion dollars you know to the economy here.
So yeah, we're approaching that now and it's officially on
and one peak for months to come.
So this is the backdrop then to London Climate Action Week.
I'll also add that the backdrop of course is the
World Cup as well, and there's expected to be very
very high heat at many of those matches. Again that's
difficult for some European football playing nations, and a lot
of weather warnings there too. But I wanted to pick
up with the Olivia on what Joe was saying there.
It's not just about heat, it's also about water and
it's about flooding. And we've been writing a lot about
the unseasonable weather that we've been having here in the UK,
but it's kind of an example of what is happening
in many countries. We've had this record setting May in
terms of the temperatures, but now very very wet June.
It's not just kind of heat waves and air conditioning
we're thinking about. It's also the flood risks too.
Yeah.
Absolutely, And I think the thing that you see in
the UK is what was historically a sort of very
temperate climate that moved within you know, specific parameters most
of the time, to something that's a little bit more dramatic.
So we see these much bigger swings from you know,
we had over thirty degree temperature heat waves I'm sorry,
I'm in Celsius rather than fary high.
We'll forgive you.
Yeah, in May, which is very unseasonally hot, and then
you know, it swings away again and we get really
really heavy rainfall. And that is climate driven because you know,
for every degree of extra warming in the atmosphere, it
means that it can hold that much more moisture. And
so when we do get those summer downpours, they are
heavier than they historically would have been. And the other
thing I think that's interesting in the UK and also
you know other places that we're not used to this
type of dramatic climatic shift, is that our infrastructure and
our buildings are not well adapted to this level of
heavy rainfall. So you see the risk of surface water
flooding is rising really significantly at the same time as
we're paving over a lot more land, and that increases
that risk on top of the extra rainfall, and this
is something that insurers increasingly are very concerned about. You know,
it comes down to even a garden level, thinking about
how people are managing their own garden space. Increasing the
people are paving over, you see more astroturfh around, putting
in driveways, which maybe makes their life easier, but insurers
are actually very concerned about that as a risk. That
accentuates the impact of surface water flooding and can cause
you know, really significant property damage and really traumatic experiences
as well for people affected by it.
Yeah, I've been very interested to read your climate change newsletter,
the content that you put out regularly on those issues.
The paving over of front gardens in London. I mean,
it's down to the micro level, but this is where
you see kind of a climate change really large.
Joe.
Another area that has been fascinating when we're talking about
how unusual it used to be to have air conditioning
in London, but now it's becoming much more common, and
maybe this is also something that in many more cities
is becoming more common. I mean, AC in the United
States takes up a huge chunk of energy consumption. It's
become much more common across Europe and elsewhere.
You know, it is becoming more common here, It's becoming
more common across Europe. We've seen installation rates across Europe.
Adoption of AC installed in homes and businesses is low
in the UK, but people's interest in cooling down when
these heat waves hit is very high. We saw a
huge jump in purchases of these portable air conditioning units
and fans, you know, at retailers here in the UK,
you know, at Curryes saw like a twenty seven hundred
percent increase in portable air conditioning sales year over year
during that that May heat wave that we just had.
John Lewis saw an eight hundred percent surge. While their
adoption rate installation rate of these air conditionings is pretty
low in buildings when that heat hits, people will spend
money to stay cool.
But surely that's massively inefficient Olivia. I mean, and there
is the push pulls in there between climate change policy
and then what people actually do when they heat.
Yeah, so part of the problem in the UK is
that we just haven't designed our buildings really in any era,
including the modern era, to cope well with heat, and
so you know, it doesn't actually take a huge amount
of heat for people to start to get really uncomfortable
sometimes in homes and other buildings as well, things like
care homes and hospitals. That's one of the things the
Climate Change Committee really highlighted, and you know, the current
building policies, especially in London, really try and dissuade people
from getting their conditioning. You have to in a lot
of places, you have to jump through hoops, you have
to get planning permission, if you're a leaseholder you're own
a flat. It can also be quite complex, and so
what people are actually doing is going out and buying
these portable systems, which the types of ones that Joe
references that you can buy from Curries or John Lewis,
which are, as you say, much less efficient than a
real kind of fixed system. So in some ways we
sort of currently have the worst of both worlds because
people are still they need to be cool and their
home or whatever building they're living in is not well
adapted so they're having to do something, but doing something
that's more sort of fixed and permanent is quite difficult.
Just tell us a little bit about the politics in
the UK. I mean, climate change is a reality in
countries around the world, including in Britain, but there is
still climate denialism, isn't there. How have you seen that, Olivia?
Yeah, well, I think a lot of people thought that
we'd sort of vanquished climate denialism in the UK, and
that's not currently the case because, you know, like a
lot of places, there's been the rise of more populist politics,
and here that is particularly expressed in the Reform Party
and you know their policy around climate change. We interviewed
Richard Tice on the Zero podcast. My colleague Akshat Rathi
interviewed him a few weeks ago, and you know, he
is very dismissive of the human impact on the climate.
And his argument is really, well, we should just adapt
to it. You know, we should forget trying to cut emissions.
You know, it's too expensive, it's waste of time. We
should just spend loads of money on adapting to it.
The problem with that is that if we kind of
allow climate change to run away, and you know, we
get temperature rises. We're already on course for way over
one point five degrees of temperature rises by mid century,
you know, even more than that. Adapting to that, it's
like sort of trying to fill up a bucket that's
got holes in it. You're really trying to keep up
with something that is happening on a scale that we're
just not used to as human beings. And the cost
of that, you know, he says, it's fairly kind of minimal,
and it's sort of as much more cost effective than
mitigating I think there are a lot of experts in
the climate space that would disagree with that.
My thanks there to Bloomberg's Joe Worth and Olivia Rodguard
well with former US Sector of State John Kerry and
former UK Prime Minister Boris Johnson, both scheduled to speak
at London Climate Action Week in the next few days.
We will have full coverage of the convergence of climate
and finance across Bloomberg platforms. I'm Caroline Hepge here in London.
You can catch us every weekday morning for Bloomberg Daybreak
you at beginning at six am in London. That's one
am on Wall Street.
Nathan, Thanks Caroline, and coming up on Bloomberg day Break weekend,
we'll look ahead to price pressures down Under. I'm Nathan Hager,
and this is Bloomberg. This is Bloomberg Daybreak weekend, our
global look ahead, the top stories for investors in the
coming week. I'm Nathan Hager in Washington. It's not just
the Federal Reserve getting ready for inflation data. This week,
we also get a fresh look at how much price
is arising in Australia. For more, let's get to Doug Prisner,
host of the Bloomberg Daybreak Asia podcast.
Thanks Nathan. Last week, the Reserve Bank of Australia warned
that inflation is still too high. OURBA Governor Michelle Bullock
said inflation is likely to remain high for some time
as higher fuel prices feed through to prices of other
goods and services. Now this week we'll get the report
on Australian consumer prices and to help us preview the numbers,
let's bring in Bloomberg Economy for Australia and New Zealand
James McIntyre. James joins from our studio in Sydney. Thank
you for being here. So last week, the RBA left
its official cash rate unchanged at four point three five
percent now to be fair, the central Bank has raised
rates three times already this year to try to get
inflation back to target, and yet price stability is still
a problem. Does it all come down to higher energy
costs as the result of the war in Iran.
Well, what the RBA has been worried about there is
that there was a lot of strength in the economy
at the end of the year, and it looked like
in the beginning of the year before the outbreak of
conflict with Iran, things were going quite strong, and they
were worried that inflation was going to take off a
bit from the other side of the economy when you
throw an energy shock onto that. That was when they
decided to pull the trigger and act, and they did
that three times. So it's unsurprising that they did take
a chance to take a little bit of a breather
after three rate hikes in a row. But they are
still concerned and really want to talk tough, and they
have done that. They've continued to talk tough to try
and make sure they get inflation expectations staying on a lock.
As the energy in inflation shock works its way through
the system over the course of coming months.
So from what I understand, James, it's not just the
headline reading that's a problem. It's underlying inflation. I think
that's a little more concerning. Do I have that right?
You do?
That's right? And so what we've got with the headline
is actually we've had some retreat. We've got a little
bit of a pullback. It was surprisingly weaker at the
headline number in April, and that was because of government
initiatives to have fuel excise tax, so it really helped
to mute and damp some of that energy shock at
the bowser, at the at the petrol pump for consumers.
We'll see a little bit more of that in the
May data. But what we've got on the underlying inflation
is that's remaining a little bit stickier. Three point three percent,
probably up to three point four on our numbers for
the month of May, and that's above the RBAS two
to three percent band. It has come off a little,
but there's a long way to go, and that's what
we think the Central Bank is concerned about and why
even though they're on hold now and could be on
hold for quite some time. They're going to continue to
articulate a very concerned and tough stance and keep that
threat of further hikes alive.
So what are you expecting to see in the upcoming
data this week when it relates to consumer prices.
Yeah, so we're expecting to see on a month on
month outcome, a decline in prices. A pullback in those
gasoline or we call it petrol prices at the pump
is a big part of that story. There are usually
some seasonal things that are a little bit damper, but
on a year on year we're expecting the inflation at
the headline level to fall from four point two in
April down to four for May, but at the trim
mean level that's likely to stay elevated at moving in
the other direction from three to three to three four.
These are the monthly da data though that is a
new development for Australia. We've had a monthly CPI now
for a little while. The RBA is still focusing in
on the quarterly numbers and so we've got another month,
the June data, which will then be the Q two,
the second quarter CPI. That's going to be the big
key one that the RBA is really going to be
focused on.
So what is the market right now expecting in terms
of further tightening from the Reserve Bank.
Well, market expectations have pulled back a little. If we
were to circle back, probably a month ago, we were
seeing further hikes being priced in by the market, but
that has really dialed back, and it's dialed back for well,
one particularly important reason. Not just what's happened with the
reopening of the rate of Hall moves and that news
that we should see some easing of the energy supply
shock that's come there. What we have seen domestically is
actually quite important, and we've seen the Economic Surprise Index
for Australia, that Citybank Economic Surprise Index really fall into
deeply negative territory. It wasn't just the April CPI surprising
on the downside, but the labor market data surprised on
the downside as well, showing that we actually had a
fall in jobs and a spike up in the unemployment rate.
If we get some more signs of that weakening in
the labor market, that's really going to cause a bit
of tension for the RBA with their dual mandate.
So I understand that there is a bit of softening
in the labor market, and I guess you could make
the case that that's to be expected given the tightening
that the RBA is already executed, if I can use
that term. But I'm curious about how well wages are
holding up right now.
Yeah, so wages at the private sector level are okay,
they're in the zone in terms of the RBA's zone
of comfort. There. We did have a minimum wage decision,
so there is a portion of the labor market. There's
a federal or a national minimum wage for Australia and
around about twenty percent of wages across the economy are
influenced by an annual decision on that wage or match it.
And what we had there was we had that minimum
wage increase come through at four point seventy five percent,
and that's a little bit higher than we might have
been expecting. What the Wage Tribunal opted to do was
to protect low wage workers from the impacts of inflation
that they experienced last year. Now, unfortunately, what that means
is it pushes up those costs for that section of
the labor market, and as a result, that means it's
a little bit more difficult and makes inflation a little
bit stickier to come down, especially if other workers in
the other eighty percent of the labor market have a
look at that what those low wage workers are getting
and say, you know, to their employers, I want the same,
Please that that is a little bit of a challenge.
So there's a little bit of I guess weakness in
the labor market that helps the RBA keep a little
bit of a lid on the risk of that fairly
solid wage game that came through proliferating more broadly across
the overall wage complex and keeping inflation pressures lingering or
sticky in the system.
So, given everything that we're talking about here, I'm wondering
how well household spending is holding up. Are things okay?
Are they stable? Are they beginning to soften a bit?
What's happening when it comes to household spending.
Well, we've had the household spending data for April show
that there was a little a substantive dip month on
month of about one percent, but compared to a year,
it's running just under five percent. And that's in norminal terms.
That's an okay outcome. But what we should be seeing
is we should be expecting that to fall. It's not
just the petrol prices or those gasoline prices coming back
thanks to initiatives by the government to deliver some price
relief and tax relief on those. We've got rate cuts
being a factor here, but we've also got a negative
wealth effect coming through. Australia's house prices have finally shown
signs of cracking. There's a two speed market at play.
Smaller capital cities and the mining and resource states of
Western Australia and Queensland house prices continue to be quite
deliver quite strong and robust gains there. But in the
two major capital cities which are the big key anchors
for the economy, Sydney and Melbourne, we've seen prices weakening
since November last year, before the RBA started hiking rates,
and those rate hikes have exacerbated, especially at the top
end of the market, have exacerbated that slide in those
house prices, and so we could be seeing in those
two major economies, two major markets Sydney and Melbourn, big
anchors for the economy, a bit of a negative wealth
effect coming through and weighing on the consumer side there
as well. So there's a lot of headwinds on the
consumer story right now, and that should be something that well,
the RBA is going to be keeping a close eye
on and making sure that it isn't something that tips
over into too much of a downward spiral for demand,
which could mean that that labor market story goes from
one of softness that helps keep wage pressures in check
to one that actually is heading more towards a downturn
that could spill into a recession.
James, thank you so very much for helping us understand
the nuances of what is happening right now in the
Australian economy as we look ahead to this week's inflation data.
James McIntyre here is Bloomberg Economist for Australia and New Zealand.
Staying in Australia, Prime Minister and Thanny Albanizi has resisted
calls from making deeper cuts to immigration. That's even though
Australia is facing demographic pressures. The fertility rate is at
a record low. To get some perspective, my colleague Heidi
Straudwat spoke with professorial fellow Roger Wilkins from the University
of Melbourne.
You kind of need one if you don't have the other. Right,
we know the replacement rate has been below target for decades.
Now are there options other than migration, given it continues
to be a political flashpoint?
Not a lot of options.
I mean, it's declining fertility is not unique to Australia,
but it does pose a very difficult policy problem. I
think it's going to be something that's very hard to
turn around. I mean, policy can have some impact in
reversing it, but I think Australia's longer term economic interests
are in maintaining a healthy immigration program.
You're completely correct, of course, to point out that this is
not a proper that's unique to Australia. You only have
to look to the likes of Japan to see what
that aging population future might look like. But I do
wonder have there been any successful policies when it comes
to encouraging and getting the birth rate back up, because
we know that things like you know, baby bonus haven't
exactly been effective in the longer term.
No, although of course that was a short lived policy,
particularly so in the early two thousands when Australia had
quite large cash payments made to new parents. It reached
a peak of around seven thousand dollars Australian per child,
but that only lasted for a very short period and
we did see a bump up infertility rates at the time.
So I think there is some merit in programs like that,
where large cash payments at around the time of birth,
they have a salience that perhaps works better than things
like childcare subsidies, which can be somewhat called for people
to understand and really fully appreciate in terms of the
fact factoring in whether to have a child or.
Not, the factor of a falling birth rate, of potential
limitations on migration of an aging population. What's the overall
impact on the labor market.
Well, I mean it's certainly in the broader context, Australia
is an aging population, not aging as fast as many
other OECD countries, but nonetheless aging, and so you have
a smaller proportion of your population of prime working age,
and so that certainly raises challenges for longer term living standards.
And it also that changing structure of the population also
has implications for the structure of the labor market.
That was Roger Wilkins, Professorial Fellow from the University of Melbourne,
speaking with Bloomberg's Heidi Stroud Watts. I'm Doug Prisner. You
can catch us weekdays for the Daybreak Asia podcast. It's
available wherever you get your podcast.
Nathan, Thanks Doug, and that does it for this edition
of Bloomberg Daybreak Weekend. Join us again Monday morning at
five am Wall Street Time for the latest on markets
overseas and the news you need to start your day.
I'm Nathan Hager. Stay with us. Top stories and global
business headlines are coming up right now.