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Stephen Capello and 1494 2AY, October 2023 RBA recap.

Our CEO caught up with Kylie and Matt of 1494 2AY to discuss the Reserve Bank of Australia’s decision to hold interest rates for the fourth-straight month.

Stephen opens the chat by noting the meeting was Michele Bullock’s first as Governor.

Describing the decision to leave the cash rate on hold at 4.1% as widely expected.

Despite things looking a “bit shaky” after the monthly inflation rates which were released last week increased slightly from 4.9% to 5.2%.

Matt asks Stephen why the “pesky inflation rates” have spiked again this month after being on a “downward slide of late.”

Stephen says there were mixed opinions about whether inflation would increase, but overall says it was a surprise. He points to the increase in fuel prices. With prices rising by 9.1% in August alone, he says people are feeling the pain at the petrol bowser.

The increases, Stephen says, can be traced back to the rise in global oil prices. Which in turn is resulting in mounting concern over a supply deficit.

He says the increase in fuel costs hits our transport industry hard, and notes there is probably a good chance those increases will need to be passed through supply chains in the coming months to consumers.

Stephen then touches on the continued rising cost of housing. Pointing out that the cost of rent has risen almost 8% over the past year.

Kylie then asks that despite the latest inflation numbers not heading in the right direction, the ABS has noted that when you remove volatile items such as travel, petrol and food inflation did ease down slightly.

Stephen says you can look at it from two angles. The volatile items the ABS refers to could go the other way next month. For example, we could see a decrease in travel.

He says food and fuel are an essential living expense – not luxury items. He adds if you “throw in” the cost of insurance costs –which has increased by almost 15% annually.

He says on last check the profits of the Australian insurance firms had quadrupled to $5.8 billion. Commenting, they’re certainly benefiting from premium increases.

Matt says there are also some winners from the high inflation, which Stephen agrees.

He says you only need to look at consumer-facing industries.

Many which have seen their margins and profits increase significantly. He says they’re able to pass on these cost increases to consumers. And take advantage of some of the pent-up demand off the back of Covid.

He says with a strong job market and low unemployment figures, businesses are testing the market. And they’re finding that Australian consumers are ultimately able to and willing to pay for it.

To wrap up, Stephen says all this probably indicates that there is still a long path in front of us before inflation drops and the RBA leaves rates alone or drops them as we all hope for.