00:00:05
Speaker 1: Welcome to Fear and Greed Q & A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer, and every Monday morning, we're joined by the economics team at NAB to look at the week ahead. Sally Auld is NAB's chief economist. Sally, good morning.
00:00:22
Speaker 2: Good morning, Sean. So last week's.
00:00:24
Speaker 1: Unemployment figures gave everyone something to think about, dare I say, particularly given the trend in unemployment, at least. and also what's going on in inflation. So where are we in terms of the current state of the economy?
00:00:42
Speaker 2: Yeah, it's interesting.
00:00:43
Speaker 3: I think last week's labour market numbers were a bit of a surprise, certainly to us.
00:00:48
Speaker 2: We were expecting a healthier outcome.
00:00:50
Speaker 3: And in the end, in total, the economy lost close to 40,000 jobs, unemployment rate at 4.7%. And that's a little bit higher than where we thought it would be at this point in the cycle, and certainly higher than where the RBA, importantly, thought it would be at the end of the third quarter. What's interesting is that when we look at the GDP data for the first six months of 2026, we can see quite a marked slowing in the domestic economy, especially relative to where we were in the last six months of 2025.
00:01:21
Speaker 2: And so growth has slowed.
00:01:23
Speaker 3: And so in some ways, it's not surprising that the labour market continues to soften. But I think what's interesting about this set of circumstances we find ourselves in is that it is quite a challenging story in the sense we've got slower growth, we've got a softer labour market, yet the inflation challenge still remains quite difficult for the central bank. And so that combination of softer growth, softer labour market outcomes and still elevated inflation I think is quite an uncomfortable one for most policymakers, including the RBA.
00:01:57
Speaker 2: Okay.
00:01:57
Speaker 1: So last week, I mean, if you throw in the, going on from what you just said, then the unemployment rate, the National Australia Bank Business Conditions and Sentiment Index in particular, it's kind of shows a weak economy, but isn't that what the Reserve Bank wants? Isn't that what raising interest rates is all about, is actually taking the steam out of the economy. So then that feeds through to price pressures and wage price pressures don't seem to be quite as as high as some people had feared? And isn't the economy doing what it's supposed to do when you've had four rate rises?
00:02:32
Speaker 2: That's exactly right.
00:02:33
Speaker 3: And so we know with monetary policy that there's a lag associated with it. And so some of the academic evidence suggests that maybe those lags take sort of 12 to 18 months to fully play out. And so even though the RBA lifted rates in February, we're not anywhere near that sort of 12 to 18 months time. And so I think as the governor told us at a press conference in September, they just want a little bit more time to be able to observe exactly what's going on in the economy and to see the full impact of the tightening that they've executed. So definitely true that this is what we would expect in terms of higher rates, slower growth domestically. And then the question really for the RBA and for markets is, the 100 basis points of tightening and the slowing in the economy we've seen so far, and we will get a bit more, at least on our forecast, is that going to be enough to ultimately secure inflation coming down into the target band and staying there?
00:03:33
Speaker 2: Sustainably? So that's the big question.
00:03:35
Speaker 3: And as we see it today at NAB, our answer to that question is we actually think the RBA are probably done at 4.6%. I say that with the caveat that if anything's going to happen to rates in the next three to four months, more likely that they move up rather than down. But we think as we move into the end of the year, the RBA will start to accumulate enough evidence from the activity side of the economy. So things like labour market, things like the NAB Business Survey, GDP data that gives them a bit more confidence that they probably have, broadly speaking, the right settings of monetary policy to get inflation where they want it. Having said that, there's a lot going on in inflation, a lot of challenges both domestically and internationally.
00:04:22
Speaker 2: And so they will.
00:04:24
Speaker 3: Remain, I think, for the next three to six months, very sensitive to any sort of upside surprises in that inflation story.
00:04:31
Speaker 1: Are there parts of the economy that are, well, clearly there are parts of the economy doing better than other parts of the economy. And we talk about data center build outs and how much money is being spent there. Which parts of the economy are hurting most?
00:04:46
Speaker 3: So I guess this is one of the interesting things about the economy at the moment. There are some sectors that are doing well. And if we look to our NAB Business Survey, because we survey conditions across eight different industries in that survey, the ones that sort of stand out as doing relatively well at the moment are.
00:05:02
Speaker 2: Things like construction, interestingly enough.
00:05:06
Speaker 3: And that's possibly related to a really strong pipeline of non-residential construction taking place across the country. What we call finance, business and property services, that sector seems to be.
00:05:18
Speaker 2: Doing reasonably well at the moment.
00:05:21
Speaker 3: And then also mining, unsurprisingly, you know, I guess demand for commodities remains strong at the moment. So there'd be three where I think you could say they're doing better than average. The two that I would probably call out as to being a couple that are really underperforming, unsurprisingly, they're what we would consider highly cyclical industries. So they tend to, you know, really move up and down with their business cycle. Retail and manufacturing are probably the two where when we look at our NAD business survey, most of the signals tell us that those two industries are not performing so well at the moment.
00:05:56
Speaker 1: And that doesn't surprise you in a sense because it's an economic cycle.
00:06:00
Speaker 2: Yes, I think that's right.
00:06:01
Speaker 3: So those highly cyclical industries tend to be quite high beta or quite sensitive to the economic cycle. And so they tend to do really well when the economy is picking up and they tend to do a bit worse than everything else when the economy is slowing as it is at the moment. So not surprising really to see those two sort of struggling a little bit.
00:06:21
Speaker 1: Okay, Sally, I've got a listening question for you, but Before I do that, I want to know when you're an economist and you have a week coming in the next five days where actually there's not a lot of information out there. Is that a good or a bad thing? I mean, is it more fun when there's lots of information or does this actually give you time to stand back and think, right, what is going on here?
00:06:43
Speaker 2: I think it's a bit of both.
00:06:44
Speaker 3: Like it's always fun and stimulating and interesting, you know, when you have a flow of data. So a week like last week where we had a fair bit going on, like there's a lot to digest, a lot to think about. That's where weeks like the one that we have this week where there's not much going on can actually be really good because it does give you a bit of an opportunity just to sort of sit back, take stock and say, okay, so where did we land? where's the signal and what's noise in the data we just had and just sort of reflect a little bit. And so I think those periods are actually really useful because otherwise I think you almost go a bit mad just having to constantly absorb, you know, a new flow of information sort of every 24 hours. So I think that's what we'll use this week to do. Okay.
00:07:26
Speaker 1: I have a question from Brendan, a listener, and I'm going to, I'll read it to you. It's a bit long, a little bit technical, but we'll get there. So Brendan says, could you take a look at the monthly CPI data release and explain why the education component stays so high year round? While media attention focuses heavily on housing and transport swinging around 5% to 6%, education inflation has consistently tracked between 4.7% and 5.6% over the last 18 months. Is this annual step, function, reading largely driven by private school fee increases, international students, rising teacher wages or administrative overheads in higher education? And how much does overall university sector funding play a role? Thanks in advance, Brendan. So thank you, Brendan. Anyone that wants to send a question in to Sally or anyone from the NAB economics team, fearandgreed.com.au is a place to do it. Sally, what's the answer to that?
00:08:21
Speaker 3: Okay, so we're really getting into the nuts and bolts of the CPI now. And so I think it's important to remember that what we're measuring when we look at CPI, we're not looking at the cost of running the education system.
00:08:33
Speaker 2: That's not what we're measuring here.
00:08:35
Speaker 3: What we are measuring is basically the change in prices that households pay for a basket of education-related services.
00:08:43
Speaker 2: That's what we're looking at.
00:08:46
Speaker 3: And so when we look at what the ABS measures in the education part of CPI, there's three parts to it. And it's basically, first part is preschool and primary education. So it's everything from fees and what they call compulsory non-tuition charges. So that could be things like camps or book fees. So that's the first bit. Secondary education, the big one there is really just tuition fees in the main. And then there's The third part, which is tertiary education, so that's university and TAFE fees. And so what happens with this particular component of the monthly CPI is that there are different collection frequencies for all those things. So they actually only collect university fees, secondary school fees and preschool fees annually.
00:09:36
Speaker 2: So they do that once a year.
00:09:37
Speaker 3: And typically they do it at the beginning of the academic year because that That tends to be when most schools or educational institutions actually lift their fees. Vocational and educational training, so TAFE fees, they'll collect those twice a year. And then just recently, they've started every month collecting data on the cost of long daycare, but only the long daycare places where there's a preschool program, so there's some sort of formal education going on. But most of it happens and most of that component only happens once a year. So when you look at the actual index, so not looking at the change in price, but just looking at the level of prices, to Brendan's question, it looks like a step function. So it goes up at the beginning of the year and then not a lot happens and then it goes up. at the beginning of the next year and not a lot happens. And so that's why basically it runs at a broadly similar rate for.
00:10:38
Speaker 2: Most of the year.
00:10:39
Speaker 3: And then it's really the magnitude of that step up in the first part of the calendar year that determines the annual rate for most of the year. So hopefully, Brendan, that explains the answer to your question. But like I said, we are getting into the pretty minute details of how the inflation.
00:10:59
Speaker 2: data are put together.
00:11:00
Speaker 3: Let's leave it there then.
00:11:01
Speaker 1: Sally, thanks for talking to Fear and Greed.
00:11:03
Speaker 2: A pleasure, Sean. Anytime.
00:11:05
Speaker 1: That was NAB Chief Economist, Sally Auld. I'm Sean Aylmer. This is Fear and Greed, the week ahead with NAB.
Speaker 1: Welcome to Fear and Greed Q & A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer, and every Monday morning, we're joined by the economics team at NAB to look at the week ahead. Sally Auld is NAB's chief economist. Sally, good morning.
00:00:22
Speaker 2: Good morning, Sean. So last week's.
00:00:24
Speaker 1: Unemployment figures gave everyone something to think about, dare I say, particularly given the trend in unemployment, at least. and also what's going on in inflation. So where are we in terms of the current state of the economy?
00:00:42
Speaker 2: Yeah, it's interesting.
00:00:43
Speaker 3: I think last week's labour market numbers were a bit of a surprise, certainly to us.
00:00:48
Speaker 2: We were expecting a healthier outcome.
00:00:50
Speaker 3: And in the end, in total, the economy lost close to 40,000 jobs, unemployment rate at 4.7%. And that's a little bit higher than where we thought it would be at this point in the cycle, and certainly higher than where the RBA, importantly, thought it would be at the end of the third quarter. What's interesting is that when we look at the GDP data for the first six months of 2026, we can see quite a marked slowing in the domestic economy, especially relative to where we were in the last six months of 2025.
00:01:21
Speaker 2: And so growth has slowed.
00:01:23
Speaker 3: And so in some ways, it's not surprising that the labour market continues to soften. But I think what's interesting about this set of circumstances we find ourselves in is that it is quite a challenging story in the sense we've got slower growth, we've got a softer labour market, yet the inflation challenge still remains quite difficult for the central bank. And so that combination of softer growth, softer labour market outcomes and still elevated inflation I think is quite an uncomfortable one for most policymakers, including the RBA.
00:01:57
Speaker 2: Okay.
00:01:57
Speaker 1: So last week, I mean, if you throw in the, going on from what you just said, then the unemployment rate, the National Australia Bank Business Conditions and Sentiment Index in particular, it's kind of shows a weak economy, but isn't that what the Reserve Bank wants? Isn't that what raising interest rates is all about, is actually taking the steam out of the economy. So then that feeds through to price pressures and wage price pressures don't seem to be quite as as high as some people had feared? And isn't the economy doing what it's supposed to do when you've had four rate rises?
00:02:32
Speaker 2: That's exactly right.
00:02:33
Speaker 3: And so we know with monetary policy that there's a lag associated with it. And so some of the academic evidence suggests that maybe those lags take sort of 12 to 18 months to fully play out. And so even though the RBA lifted rates in February, we're not anywhere near that sort of 12 to 18 months time. And so I think as the governor told us at a press conference in September, they just want a little bit more time to be able to observe exactly what's going on in the economy and to see the full impact of the tightening that they've executed. So definitely true that this is what we would expect in terms of higher rates, slower growth domestically. And then the question really for the RBA and for markets is, the 100 basis points of tightening and the slowing in the economy we've seen so far, and we will get a bit more, at least on our forecast, is that going to be enough to ultimately secure inflation coming down into the target band and staying there?
00:03:33
Speaker 2: Sustainably? So that's the big question.
00:03:35
Speaker 3: And as we see it today at NAB, our answer to that question is we actually think the RBA are probably done at 4.6%. I say that with the caveat that if anything's going to happen to rates in the next three to four months, more likely that they move up rather than down. But we think as we move into the end of the year, the RBA will start to accumulate enough evidence from the activity side of the economy. So things like labour market, things like the NAB Business Survey, GDP data that gives them a bit more confidence that they probably have, broadly speaking, the right settings of monetary policy to get inflation where they want it. Having said that, there's a lot going on in inflation, a lot of challenges both domestically and internationally.
00:04:22
Speaker 2: And so they will.
00:04:24
Speaker 3: Remain, I think, for the next three to six months, very sensitive to any sort of upside surprises in that inflation story.
00:04:31
Speaker 1: Are there parts of the economy that are, well, clearly there are parts of the economy doing better than other parts of the economy. And we talk about data center build outs and how much money is being spent there. Which parts of the economy are hurting most?
00:04:46
Speaker 3: So I guess this is one of the interesting things about the economy at the moment. There are some sectors that are doing well. And if we look to our NAB Business Survey, because we survey conditions across eight different industries in that survey, the ones that sort of stand out as doing relatively well at the moment are.
00:05:02
Speaker 2: Things like construction, interestingly enough.
00:05:06
Speaker 3: And that's possibly related to a really strong pipeline of non-residential construction taking place across the country. What we call finance, business and property services, that sector seems to be.
00:05:18
Speaker 2: Doing reasonably well at the moment.
00:05:21
Speaker 3: And then also mining, unsurprisingly, you know, I guess demand for commodities remains strong at the moment. So there'd be three where I think you could say they're doing better than average. The two that I would probably call out as to being a couple that are really underperforming, unsurprisingly, they're what we would consider highly cyclical industries. So they tend to, you know, really move up and down with their business cycle. Retail and manufacturing are probably the two where when we look at our NAD business survey, most of the signals tell us that those two industries are not performing so well at the moment.
00:05:56
Speaker 1: And that doesn't surprise you in a sense because it's an economic cycle.
00:06:00
Speaker 2: Yes, I think that's right.
00:06:01
Speaker 3: So those highly cyclical industries tend to be quite high beta or quite sensitive to the economic cycle. And so they tend to do really well when the economy is picking up and they tend to do a bit worse than everything else when the economy is slowing as it is at the moment. So not surprising really to see those two sort of struggling a little bit.
00:06:21
Speaker 1: Okay, Sally, I've got a listening question for you, but Before I do that, I want to know when you're an economist and you have a week coming in the next five days where actually there's not a lot of information out there. Is that a good or a bad thing? I mean, is it more fun when there's lots of information or does this actually give you time to stand back and think, right, what is going on here?
00:06:43
Speaker 2: I think it's a bit of both.
00:06:44
Speaker 3: Like it's always fun and stimulating and interesting, you know, when you have a flow of data. So a week like last week where we had a fair bit going on, like there's a lot to digest, a lot to think about. That's where weeks like the one that we have this week where there's not much going on can actually be really good because it does give you a bit of an opportunity just to sort of sit back, take stock and say, okay, so where did we land? where's the signal and what's noise in the data we just had and just sort of reflect a little bit. And so I think those periods are actually really useful because otherwise I think you almost go a bit mad just having to constantly absorb, you know, a new flow of information sort of every 24 hours. So I think that's what we'll use this week to do. Okay.
00:07:26
Speaker 1: I have a question from Brendan, a listener, and I'm going to, I'll read it to you. It's a bit long, a little bit technical, but we'll get there. So Brendan says, could you take a look at the monthly CPI data release and explain why the education component stays so high year round? While media attention focuses heavily on housing and transport swinging around 5% to 6%, education inflation has consistently tracked between 4.7% and 5.6% over the last 18 months. Is this annual step, function, reading largely driven by private school fee increases, international students, rising teacher wages or administrative overheads in higher education? And how much does overall university sector funding play a role? Thanks in advance, Brendan. So thank you, Brendan. Anyone that wants to send a question in to Sally or anyone from the NAB economics team, fearandgreed.com.au is a place to do it. Sally, what's the answer to that?
00:08:21
Speaker 3: Okay, so we're really getting into the nuts and bolts of the CPI now. And so I think it's important to remember that what we're measuring when we look at CPI, we're not looking at the cost of running the education system.
00:08:33
Speaker 2: That's not what we're measuring here.
00:08:35
Speaker 3: What we are measuring is basically the change in prices that households pay for a basket of education-related services.
00:08:43
Speaker 2: That's what we're looking at.
00:08:46
Speaker 3: And so when we look at what the ABS measures in the education part of CPI, there's three parts to it. And it's basically, first part is preschool and primary education. So it's everything from fees and what they call compulsory non-tuition charges. So that could be things like camps or book fees. So that's the first bit. Secondary education, the big one there is really just tuition fees in the main. And then there's The third part, which is tertiary education, so that's university and TAFE fees. And so what happens with this particular component of the monthly CPI is that there are different collection frequencies for all those things. So they actually only collect university fees, secondary school fees and preschool fees annually.
00:09:36
Speaker 2: So they do that once a year.
00:09:37
Speaker 3: And typically they do it at the beginning of the academic year because that That tends to be when most schools or educational institutions actually lift their fees. Vocational and educational training, so TAFE fees, they'll collect those twice a year. And then just recently, they've started every month collecting data on the cost of long daycare, but only the long daycare places where there's a preschool program, so there's some sort of formal education going on. But most of it happens and most of that component only happens once a year. So when you look at the actual index, so not looking at the change in price, but just looking at the level of prices, to Brendan's question, it looks like a step function. So it goes up at the beginning of the year and then not a lot happens and then it goes up. at the beginning of the next year and not a lot happens. And so that's why basically it runs at a broadly similar rate for.
00:10:38
Speaker 2: Most of the year.
00:10:39
Speaker 3: And then it's really the magnitude of that step up in the first part of the calendar year that determines the annual rate for most of the year. So hopefully, Brendan, that explains the answer to your question. But like I said, we are getting into the pretty minute details of how the inflation.
00:10:59
Speaker 2: data are put together.
00:11:00
Speaker 3: Let's leave it there then.
00:11:01
Speaker 1: Sally, thanks for talking to Fear and Greed.
00:11:03
Speaker 2: A pleasure, Sean. Anytime.
00:11:05
Speaker 1: That was NAB Chief Economist, Sally Auld. I'm Sean Aylmer. This is Fear and Greed, the week ahead with NAB.
