Matt Doran: Well, families are nervously waiting to tighten their belts this weekend ahead of the Reserve Bank’s interest rate decision. Now, the majority of economists don’t believe a rate hike is likely, but few are predicting a rate cut.
Angela Cox: Each of the big four banks backs that view and is still forecasting a possible rate cut by Christmas. For more, we’re joined by independent economist Evan Lucas. Good morning to you. Thanks for joining us. So the big question, what is your prediction for Tuesday?
Evan Lucas: Look, Tuesday is going to be a nonmovement and in terms of where it is, it’s more, we are about to have two Tuesdays that could define the rest of 2024, why I say, that we’ve got the RBA this coming Tuesday and Tuesday week, we have the federal budget. And so Tuesday will be an absolute outline of what the RBA now sees around inflation, what it sees around the economy, and as you alluded to, what that means for household budgets, because clearly things have changed. Inflation in the first quarter of this calendar year is ahead of their expectations.
And that’s why some economists have changed their views about possible, not just cut, but rate hikes this year, all around the idea that at the moment, we just cannot get inflation back to a level that’s actually sustainable, which is between 2 and 3%.
Matt Doran: It’s a real change in philosophy, isn’t it? And when you look at these economists saying that we now could be looking at hikes. Do you think that that’s where we’re going to have to end up in terms of trying to get some handle on this inflation?
Evan Lucas: So that question Matt, is amazing because part of the problem inside the inflation, there’s a lot of stories you can spin from it because the data is so diverse, and what I mean by that, we know and those of you out there know, that essentials, rent, housing, insurance, health, education, those prices that you just have to take because they’re essential to what we do, they’re the ones that at the moment we just cannot get down. They are sitting at about 5% per annum, and that is where the question will come. It’s why the federal government is part of that question because they do impact some of those parts.
Yes. That means also, unfortunately Matt, that the impact is to the upside in some people’s views to rain in our spending further, despite the fact we’ve got those essentials. Rates might have to rise further. I’m not one of them. I think rates will sit on hold, but that’s their view, and that’s why they’re calling that call.
Angela Cox: Because I’ve read, what’s tricky about it when it’s not popular to increase rates but if we don’t and inflation keeps going up, that stays up. Once the horse bolts, it doesn’t come back down. So we’re paying 20 bucks for a sandwich soon and you can’t get it back. Whereas with interest rates, if we do hike them, we do still have the flexibility to bring them down later. Do you see some logic in that?
Evan Lucas: Yes, I do. So what you’re sort of arguing there Ange is, we’ve got to also remember it’s not just about the inflation now. It’s the inflation we’ve had over the last three years.
So if you look at the dollar that you had at the start of Covid to use that same dollar today, it’s now sitting at $1.17. So we’ve had a 17% increase in the things that we do over that period, and if we keep going at the current rate, it will mean that dollar that you had to do in Covid will be $1.24 by the end of next year. So it needs to come right back in because it comes back into what they want, that dollar becomes $1.20 next year, and that 4 cent change is a massive issue in terms of the impact it has on compounding.
So yes, I agree with that. That’s the theory. Doesn’t mean it’s easy to sell, and it doesn’t make it any nicer for those out there with some form of lending that has to feel the higher interest rates that get us back to that level.
Matt Doran: And that doesn’t help at all. And that the government’s under some pressure to deliver some relief. Thank you very much, Evan. Appreciate your time.
Evan Lucas: Thanks, guys.
