Cameron Bagrie: Independent Economist on inflation reaching 2.7%

Inflation is coming dangerously close to the top end of the Reserve Bank’s target band. 

It’s reached 2.7% year-on-year – the main drivers being council rates, increased rents, electricity prices, and food prices. 

Independent economist Cameron Bagrie told Ryan Bridge that there’s not only cyclical damage to the economy from the Reserve Bank’s efforts to curb inflation, but also significant structural issues. 

He says that productivity used to be, on average, 1.4% per year, but it’s now down to 0.3%. 

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Episode Transcript

Speaker 1 (00:00):
Inflation two point seven cent yesterday. It is close to
the top end of the Reserve Banks target Council rates
were your main driver. Also, you saw increases in rents, electricity, food.
Most think it'll come down, so shouldn't stop the Arbenz
from their cutting cycle. Cameron Baggery's independent economist with me
this morning. Cameron, good morning.

Speaker 2 (00:20):
No, good morning?

Speaker 1 (00:21):
Hey? Is it just me? Is it just winter? Everyone
feels a little bit miserable out there. When do we
start to feel better about things?

Speaker 2 (00:30):
Do you think, Well, the economy slowly turning the corner,
but we're coming out of a mighty economic hole and
it looks like on the growth stakes we might have
stopped for a David Longi, a cup of tea and
the juke corter because growth doesn't look like it was
flashed them. But the main recession period was the middle

(00:51):
of twenty twenty four, the December quarter twenty twenty four,
the March quarter twenty twenty five. We got positive growth,
so we're moving in the right direction. But if you
look at the level of GDP, we're still well below
where we're twelve months ago. So once again, Ryan, we're
getting out of a hole. But we're still in a
bit of a hole.

Speaker 1 (01:12):
And you know, we keep talking about wages are going
faster than inflation, so people are feeling richer. I mean,
I'm mute to meet someone who says that. But these
are all averages. I mean, is there a reason why?
Can we explain why people are feeling this way?

Speaker 2 (01:31):
Well, this is a different economic downturn to what we've
seen for a long time. Yeah, it's been pretty deep.
The economy has not just got what's called circol damage,
i e. The Reserve Bank beat the economy up in
order to get rid of inflation. There's a pretty big
structural that's just going on at the same time. Yeah,
we've got massive problems across the educationency for infrastructure. Productivity

(01:55):
growth within this economy used to be one point four
percent on average per year. It's now down at zero
point three percent, which is basically zippo. So a little
wonder that people want to get out the season go
to Australia because productivity growth is a fundamental driver of
wage growth. If you're not getting productivity growth or don't
expect to see too much wage growth on the other side,
So it's the combination of that. The cyclical downturn that

(02:18):
we've been through, the combination with there's a whole lot
of structural issues that we still need to address. So
this economic recovery, while it's underway, is going to take
a little bit of time before people start to get
into that happy zone.

Speaker 1 (02:30):
How low do you think the r being zend is
going to go and end by win.

Speaker 2 (02:36):
I think they might have another twenty five up their sleeve.
The official care straight around three percent, you know, three
percent for the defecial castrade is what's called the neutral ocio.
That's with the reserve banks neither got the foot and
accelerator or the break. That's broadly where they need to be.
It's the reserve bank on holiday. If you're looking at growth,

(02:56):
you would say be saying the official castrade is going
sub three percent. Now that headline inflation is moving up,
and I know yesterday's number was marginally better expect than expectations,
but it's still moving up economically sensitive parts of the
economy such as constructions such as housing, the Reserve Bank
is exerting a pretty damp impact on you can't pass

(03:20):
on price increases, but the whole lot of administrative charges,
there's elocricy prices that are moving up, food prices are
moving up. Next quarter, we're going to see local authority
rates that are going to be moving up. Now that's
going to add I suspect a little bit of inflation persistence.
So it may well be I suspect inflation is going
to settle up around two and a half, which is
not two percent, which is what they were Reserve Bank's targeting.

Speaker 1 (03:40):
Yeah, Cameron, appreciate that. Thanks for your analysis this morning,
Cameron Bagery Independent Economists.

Speaker 2 (03:46):
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