Perspective with Heather du Plessis-Allan: The inflation fight is over, but the economy still suffers

Well, how good is that inflation number out today?

2.2 percent - we're there, baby! We're pretty much bang on where inflation is supposed to sit - at 2 percent, halfway between 1 and 3 in the target band.

We’ve made it. We have had inflation run out of control in this country for three years, but we have finally got it back to where it’s supposed to be. That is absolutely reason to celebrate - we're there.
 
And yet we can’t, because of the Reserve Bank.

Let’s talk about how badly these guys have stuffed this up. Even though I am stoked that we're at 2.2 percent today, it is also, unfortunately for the Reserve Bank, a pretty big signal that they’ve messed this up.
 
Because look at where the Official Cash Rate is sitting. It is still at 4.75 percent. So we've got inflation exactly where we want it, and yet we have an Official Cash Rate that is still higher than what the Aussies have - where their inflation is not in the target band.

Now explain that to me. Because our inflation is where it’s supposed to be and we have an OCR of 4.75 percent, while Australia's inflation is still much too high and they have an OCR of 4.35 percent. How does that happen?
 
Simple explanation - our Reserve Bank overdid it by punishing us. They've realised it, which is why they are now dropping the Official Cash Rate faster than they expected to. And I reckon they’ll have to go even faster.

Just watch the number of economists lining up to say a 50bp cut in November is not enough and we need a 75bp cut to get that OCR down fast.

Because the longer it stays that high, the more people lose their jobs, their houses, and their businesses - because that is the cost of the Reserve Bank making this mistake of overcooking it.

And you wanna know the worst bit about them stuffing it up? Our economy will still be paying the price for the OCR being too high right now for probably another year. That is how long it takes the OCR to wash through the system.

So we officially have inflation in the right place today - October 16, 2024. But we will still be punished for another year by that OCR being as high as it still is.
 
So the inflation fight is over, but the punishment is not over.

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Episode Transcript

Speaker 1 (00:00):
God Father, due to see how good is that inflation
number out today? Two point two percent? We're there, baby,
They've got the thing beat pretty much bang on where
inflation's supposed to sit at two percent, which is exactly
halfway between one and three in the target band. So
we have made it. Got inflation whi's been out of
control in this country for three years, finally back to
where it's supposed to be. And I think that that

(00:21):
is absolutely reason to celebrate, isn't it? Isn't that good?
We're there, However, got a little problem on our hands,
which is the Reserve Bank, and I think we need
to talk about how badly these guys have stuffed the
situation up. I am stoked and very very very excited
that we're at two point two percent today, but that
number is also, unfortunately a pretty clear signal of how

(00:44):
badly the Reserve Bank has stuffed this up, because look
at where the official cash rate is still sitting. It's
still at four point seventy five percent. So we've got
inflation exactly where we want it, and yet we've got
an official cash rate that is higher than what the
Aussies have. Now. Explain that to me, because our inflation
is where it's supposed to be, almost bang on. Our
OCR is sitting at four point seventy five percent. Australia's

(01:07):
inflation is still out of control. Their OCR is lower
than ours at four point three five percent. How does
that happen? That happens because our Reserve Bank overdid it.
They overdid it when they hike when they were pumping
the money in to the system, and then they overdid
it and they started raising the official cash rate and
they can't get it down fast enough. They're trying very
hard to get it down fast. They're dropping the official

(01:28):
cash rate faster now than they expect it to and
I reckon they're going to have to go even faster.
Watch the number of economists now line up to save
fifty basis point cut November is not going to be enough.
I mean, a few months ago we thought fifty basis
points was a crazy idea. Now we're talking about the
possibility of seventy five in the next month, because we
need to get that OCR down fast, because the thing is,
the longer that it stays as high as it is

(01:49):
right now, the more people will lose their jobs, more
people will lose their houses, the more people will lose
their businesses. That is the cost of the Reserve Bank
banking a mistake. The Reserve Bank doesn't get latitude like
the rest of us do. Right. Worst case scenario, if
I stuff up my job, as there are some kids
who hear a swear word, that kind of thing, do
you know what I mean? Worst case scenario if a

(02:10):
builder does something a bit fun things are But on
a lean worst case scenario, if these guys stuff things up,
people lose their jobs, their businesses, and their homes. So
they don't get the latitude the rest of us too.
They've got to nail this stuff. You want to know
the best that The worst bit rather about how badly
they've stuffed it up, is that we will still be
paying the price for where the OCR is sitting right now,

(02:30):
which too high, for probably another year, because that is
how long it takes the OCR to wash through the system.
So we've got inflation officially in the right place today
sixteen October twenty twenty four, but we are still going
to be punished by an overly high OCR for another
year through to October twenty twenty five. So yeah, the
inflation fight absolutely is over. But the punishment got a

(02:52):
way to go yet, haven't we? For more from hither
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