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This is Bloomberg Daybreak Weekend. Our

global look at the top stories in the

coming week from our Daybreak [music]

anchors all around the world. Straight

ahead on the program, we look to the

Fed's preferred gauge [music] of

inflation and how it could affect policy

going forward. I'm Nathan Hager in

Washington. I'm [music] Caroline Hipka

here in London where we're looking ahead

to London Climate Action Week.

>> I'm Doug Krer looking ahead to the

latest [music] reading on consumer

inflation for Australia.

That's all straight ahead on Bloomberg

Daybreak Weekend on Bloomberg 1130 New

York, Bloomberg 991 Washington DC,

Bloomberg 929 Boston, DAB Digital Radio

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and around the world on

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and the Bloomberg Business App.

[music]

>> Good day to you. I'm Nathan Hager. We

begin today's program with some key

economic data in the US and we are

getting a lot of it this week. The

Federal Reserve's preferred gauge of

inflation comes out this Thursday along

with an updated reading on economic

growth at the start of the year along

with a slew of other readings to help us

get set for the flood of data. We're

joined by Stuart Paul, US economist for

Bloomberg Economics. And I'd have to

think, Stuart, after what we heard from

the new Fed chair Kevin Worsh last week

about the commitment to price stability,

the PCE has got to be really top of

mind. Is that how you see things right

now?

>> The PCE will be top of mind. What's good

though is that CPI and PPI are used as

the primary input for PCE inflation. So,

even going into last week's FOMC

meeting, central bankers had a pretty

good feel for what we're likely to see

in this upcoming personal income and

outlays and PCE inflation report. And

frankly all the data that are going to

be included in this report which covers

everything from income to spending to

consumer price inflation uh based on the

personal consumption expenditures

basket. All of that data is basically

going to affirm the relatively hawkish

stance that we heard from Kevin Worsh

and that we saw in the dot plot released

by the broader FOMC.

>> Okay. So for those who might not be

closely keeping score on what's fed into

PCE, I think from uh the CPI and PPI

data you alluded to, we are still well

above target when it comes to the Fed's

uh 2% rate that it's shooting for.

Right. Absolutely. So we're expecting to

see about 0.5%

monthly headline PCE inflation. That's

going to boost the annual PCE inflation

rate to about 4.1%. Now core inflation

is a little bit more tame about 0.4%

core inflation on the month and that'll

boost the year-on-year rate to about

3.4%. So still a significant overshoot

uh even by the Fed's preferred measures.

>> Okay. So how are we looking then at the

trajectory for inflation right now? Now

that we have something of a resolution

in the Middle East, the oil is starting

to flow through the straight of Hormuz.

Does that affect how you as an economist

are thinking about the overall

trajectory of inflation at this point?

>> I actually think that the May inflation

readings and the PCE inflation rating is

the last real inflation reading for the

month of May. Uh I think that those May

numbers are basically going to be the

local peak that we see for inflation.

I'm expecting to see some disinflation

coming in June and thereafter. And as

you mentioned uh you know the memorandum

of understanding the reopening of the

straightforward moves both help it

should reduce the energy price pressures

that have been boosting headline

inflation and even bleeding into the

core a little bit but beyond that it

looks like we're past peak tariff pass

through. If you rewind the clock a year

it feels like a lifetime ago but we were

uh thinking about liberation day. We

were thinking about the implementation

of tariffs. We saw a major spike in the

average effective tariff rate which had

been boosting core goods prices over the

last year. But now it seems like that's

starting to fall out of the year-on-year

inflation measures. We're starting to

see some moderation in core goods

prices. We're also seeing firms face a

little bit of push back uh when they try

to pass through higher core goods prices

to consumers. So all told, we have those

two factors in play mostly on the good

side where falling energy prices in June

and favorable base effects as we pass

through peak tariff pass through uh are

going to result in a little bit of uh

disinflation

in starting in June and then probably

continuing throughout the second half of

the year. That's so of course barring

any sort of escalation uh or

reescalation of the war in Iran.

Certainly. I mean, that's a a a key uh

wild card. But with all that said,

Stuart, I think one of the last times we

spoke, you were thinking that the uh the

Fed could have uh pretty significant

room to stay on pause, if not cut in the

months to come. After what we heard from

the chairman last week, is that still

your view?

>> Look, I think that the Fed's going to do

their best to sit on their hands. We

definitely saw from the dots. We saw

from the forecasts included in the

summary of economic projections. We also

heard it in the chairman's voice in his

near singular focus on price stability

rather than employment. All of those

looked a little bit uh a little bit

hawkish. That's certainly the case. I'll

have to concede that point. But one

thing that I want everybody to be aware

of to really fully understand that it's

not clear to us and it's certainly not

clear to policy makers whether we're

seeing a lot of cyclical strength

driving economic activity or where it's

mostly just structural transformation.

So if we're looking at the totality of

the data layoffs and unemployment are

low but hiring is really concentrated in

industries that have structural

tailwinds like healthcare for example.

Investment is hot, but that's mostly in

industries that are focused on onshoring

and participating in the AI buildout.

Residential construction, for example,

is really crummy. We saw that just last

week with housing starts. Uh inflation

pressures, as I mentioned, were mostly

downstream of tariffs, chip shortages,

the Iran war, and so the disinflation uh

that we're getting there. Um again, it's

mostly because of shifts in the

landscape more so than any sort of like

cyclical factors. So all of those more

structural factors that are affecting

the dynamics of the economy rather than

extraordinary cyclical strength uh

actually do keep the door open for

you know a cut. I would not be surprised

to see a cut next year. Um and it all

really depends on the trajectory of the

labor market in 2027 when that's the

case.

>> Thanks for this Stuart as always. That's

Stuart Paul, US economist with Bloomberg

Economics. Let's take a look now at some

stocks making news in the week ahead.

I'm Nathan Hager here with Bloomberg

equities reporter Avalon Pernell ahead

of a few pretty interesting earnings

stories in the coming week. We're going

to hear from Carnival Cruise Lines on

Tuesday. It's going to be really

interesting to hear from them,

especially with so many of the headlines

around the Middle East driving cruise

stocks uh over the last several months.

Avalon,

>> absolutely. I mean, the potential end of

the Iran war and fuel costs will

definitely be top of mind for investors

as Carnival heads into its second

quarter earnings on Tuesday. Carnival

shares have been on a roller coaster

ride alongside [laughter] other travel

and cruise names to say the least since

the war started in February. But now

with the US and Iran saying that they've

reached an interim agreement to reopen

the straight of Hormuz, sentiment is

again rising in this hard-hit sector.

Worth mentioning that Wall Street still

remains cautiously optimistic about the

stock. Stiffel may have put it best at

analysts saying that trading crew stocks

is beyond difficult because you're

trading your view of whether the Middle

East war will end or not, but they

remain buyers of Carnival into their

earnings because they believe the

company hasn't witnessed any

deterioration in customer spending.

Bloomberg Intelligence highlighting that

investors will look for insight on

bookings since March when Carnival

reported that 85% of capacity had been

sold.

>> Well, uh, like you said, the stock's

kind of been all over the map since the

start of the year. What are we expecting

from the options market when it comes to

how the stock could trade off the back

of earnings?

>> Yes, option data that we are seeing at

the moment is currently implying about a

6% move after those results.

>> Okay, so we'll be keeping an eye on

Carnival Cruise Line on Tuesday along

with FedEx. Obviously, a pretty strong

bell weather for the economy as a whole,

but I mean this stock's been through

quite a few changes lately. So, how's

that uh affecting investor sentiment?

Yes, I mean FedEx to say the least will

be entering a new era when it reports

fourth quarter earnings on Tuesday. Just

this month, FedEx completed the spin-off

of its freight division and it will also

be the first earnings call for Claude

Russ who became interim CFO after John

Dietrich surprised investors by

announcing that he was stepping down at

the start of this month. Investors

expect FedEx to continue executing

despite inflationary pressures and

rising fuel costs tied to that war in

Iran. Barlay's analysts are expecting

solid retail performance and also

industrial expansion this quarter given

strong macro transportation indicators.

Though it is worth noting that Bloomberg

Intelligence highlighting with the

spin-off in the rearview mirror, FedEx

can potentially begin to focus on its

longerterm financial targets like

pushing its higher margin businesses and

also improving European results to lift

earnings above its 2029 target. And

>> yeah, so it'll be interesting to see how

that goes. But I mean, this stock in

particular has been on a pretty solid

run since even before the start of the

year. When you have uh the the FedEx

freight business in the rear view, how

is that expected to affect the

performance going forward?

>> Well, going forward, they're hoping that

this will allow FedEx to hone in on the

really quality areas of its business and

help to expand margin. And also worth

noting that options data at the moment

is currently implying a nearly 7% move

after those results. Although we will

also hear from that spin-off later that

week as well. So, we'll see how the two

go head-to-head.

>> Oh, wow. So, uh even more reason to keep

an eye on FedEx and FedEx Freight. Uh

not only that, on Thursday, uh we're

going to hear from Darden restaurants. I

mean, every time I think about Darden, I

think about all of Garden, but I mean,

I'm always surprised by how many

restaurants are under the Darden

umbrella, not just for uh casual dining,

but fine dining as well.

>> Yeah, you're absolutely right. Darden is

the parent company behind popular chains

like Roof Chris, Longhorn Steakhouse,

and my dad's personal favorite, Cheddar

Scratch Kitchen. But

>> nice.

>> We will be gaining some more visibility

on the American consumer Thursday when

Darden reports fourth quarter earnings.

Worth noting that they do continue to

outperform the S&P 500 consumer

discretionary sector and investors are

expecting the print to keep that trend

going. City analysts writing that they

expect another solid quarter marked by

comparative growth continuing to outpace

the industry. Raymond James expecting a

strong fourth quarter, noting that solid

casual dining segment trends in recent

months and also worth noting that

options data at the moment is currently

implying about a 4% move after those

results. Okay. So, uh maybe a little bit

of a pop there, but you have to wonder

when, you know, there's so much talk

about a K-shaped economy, whether, uh,

consumers are thinking about pulling

back some on some of the more

discretionary sides of the economy,

whether a company like Darden could see

a hit from something like that. If

people are thinking, well, you know,

maybe I would rather stay at home and

cook for myself rather than uh, you

know, go out for a nice meal for a

change.

>> Absolutely. And I mean, it's also not

just that. We're also thinking about the

impact of GLP-1s on various restaurants.

Obviously, fast dining, fast uh food is

going to be very impacted by GLP1s,

especially as they continue to grow in

popularity in the US. But for companies

like a Dartan restaurants, analysts have

said they're really looking for some of

these chains to launch more smaller

plates, more chicken options for

customers who are looking for a

healthier option on the menu and are

really conscious about protein. And so

that will also be something to be

interesting to keep an eye on as we see

the report later this week.

>> That's Bloomberg [music] Equities

reporter Avalon Pernell. Coming up on

Bloomberg Daybreak Weekend, we'll look

ahead to London Climate [music] Action

Week. I'm Nathan Hager and this is

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[music]

This is Bloomberg Daybreak Weekend, our

global look ahead at the top stories for

investors in the coming week. I'm Nathan

Hager in Washington. [music]

Later in the program, we'll get you set

for some important economic data coming

out in Australia this week. But first,

the world's facing an uptick in extreme

weather events, and Europe is no

exception. While one of the hottest

World Cups on record is underway on this

side of the Atlantic, Europe is enduring

a fresh wave of weather warnings, and

it's having an impact on climate

resilience, energy security, and

everyday life. For more, let's go to

London and bring in Bloomberg Daybreak

Europe anchor Caroline Heepker. Nathan,

would you believe it? The UK, which is

rarely known for hot weather, now faces

its second heat wave in a matter of

weeks. Yellow weather warnings have been

issued across Europe. And here in

London, it's spurring a national debate

about renewable energy, housing policy,

and even the role of air conditioning.

While the Iran war has already spurred

inflation across the continent and focus

minds on our collective dependence on

fossil fuels, Europe and the world must

now grapple with another cost. the 20

trillion dollars which Bloomberg

Intelligence estimates will have to be

spent on extreme weather over the next

decade. Initiatives like the upcoming

London Climate Action Week will look to

harness the power of London for global

and local climate action. Sher Hickok is

the CEO of Climate Impact Partners and

says that the kind of engagement from

local government and the business world

is needed more now than ever before.

Despite some political backlash to the

idea from opposition political parties,

she says there's actually been a surge

in corporate climate investing.

>> I think what we see in the continued

growth in the commitments is that it

isn't a short-term gain. So, as you

said, corporate commitments are up 72%,

we have now 72% of the global Fortune

500 with at least one climate goal.

That's three times since 2019. That was

Sher Hickok, the CEO of Climate Impact

Partners there, speaking to Bloomberg.

But will that be enough to combat the

paniply of looming threats from heat

waves to drought to flood risks and food

shortages? Joining me now to discuss is

Bloomberg's weather and climate reporter

Joe Wartz and Bloomberg's green reporter

Olivia Rodgard. Welcome to both of you

and thanks for taking the time to speak

to us. Joe, let's start by thinking

about the heat wave looming in Europe

right now. What does it mean for the

environment and for the economy,

>> right? So, that heat wave is building

right now in in France really is is is

kind of where things are really uh

starting to to cook over there. And this

is a one of these high pressure systems

that we saw earlier uh in late May. So,

very similar setup and they are looking

at some really scorching temperatures

and also day after day after day of

really warm nights too. They they call

these tropical nights. These are when

temperatures don't dip below 20° at

night. We could be in for days of that

in France and in Paris there. And you

know, we're already seeing some some

market ripples from this. You know, the

the rivers in France are starting to get

warm. They use those rivers to cool uh

nuclear plants. And when those river

temperatures get hot, they can't produce

as much uh nuclear energy, and they have

to limit output. So EDF in France has

already said they might have to start

limiting uh power at these plants. And

so uh the effects of this heat are

already starting to uh to trickle in.

>> Yeah. Gosh, that is surprising, isn't

it? That that the impact is so

significant. I mean, we know that

productivity drops, for example, when it

gets very hot.

>> There's also the risk of fire of

wildfires in Europe, which we often see

over the summer, and then deaths, you

know, increase as well because of the

heat. There are lots of consequences,

aren't there, for people. There's also

there've been quite a lot of talk about

um the El Nino effect. That's right.

Now, that is actually not very familiar

to a lot of people in Europe. It's

something that affects other parts of

the world more. That could shave

trillions off, you know, a very fragile

global economy. It's expected to be

really, really strong this year. Why?

And what is it?

>> Yeah, this is a uh a lot of people

aren't familiar with it because it's

actually pretty far away geographically

from Europe. This is a an area of the

Pacific Ocean that is is warming up. It

warms up on these kind of seasonal

cycles and we're in for one of these

seasonal cycles, but it's happening on

top of warming that has already occurred

as the climate's getting warmer and and

through climate change. And the

projections are that this uh this Elnino

could be, you know, potentially

unprecedented. This we're looking at a

potential record breaking heat. And this

weather pattern, even though it's

cyclical, you know, it it it has global

ramifications. It affects weather

patterns all over the world. it shifts

rainfall, increases heat in some areas,

makes it less rainy in some areas and

more rainy in others. But this is

happening on top of inflation that's

already occurring largely due to the war

uh in the Middle East and uh you know

big impacts especially in in food

systems and agriculture, drought,

wildfire, severe flooding in in some

some areas. So uh yeah, the last one the

one in last big one in 2015 and 2016 was

like 7.6 six trillion dollar uh you know

hit to to the economy here. So yeah,

we're we're approaching that now and

it's it's it's officially on and it

won't peak for months to come.

>> So this is the backdrop then to London

climate action week. I'll also add that

the backdrop of course is the World Cup

as well and there is expected to be very

very high heat at many of those matches.

Again, that's, you know, difficult for

some, you know, European football

playing nations and a lot of weather

warnings there, too. But I wanted to

pick up with you, Olivia, on what Joe

was saying there. It's not just about

heat. It's also about water and it's

about flooding. And we've been writing a

lot about the unseasonable weather that

we've been having here in the UK, but

it's kind of an example of what is

happening in many countries. is we've

had this record setting May in terms of

the temperatures, but now a very very

wet June. It's not just kind of heat

waves and air conditioning we're

thinking about. It's also the flood

risks, too.

>> Yeah, absolutely. And I think the thing

that you see in the UK is is what was

historically a sort of very temperate

climate that moved within, you know,

specific parameters most of the time to

something that's become a little bit

more dramatic. So, we see these much

bigger swings from, you know, we had

over 30°ree temperature uh heat waves.

I'm sorry. I'm I'm in I'm in Celsius

rather than Fahrenheit. [laughter]

>> Okay, we'll forgive you.

>> Yeah. Uh in May, which is very

unseasonally hot. And then, you know, it

swings away again and we get really

really heavy rainfall. Um and that is is

climate driven because, you know, for

every degree of extra warming in the

atmosphere, it means that it can hold

that much more moisture. And so when we

do get those summer downpours, they are

heavier than they historically would

have been. And the other thing I think

that's interesting in the UK and also

you know other places that were not used

to this type of dramatic climatic shift

is that our infrastructure and our

buildings are not um well adapted um to

this to this level of heavy rainfall. So

you see the risk of surface water

flooding is rising really significantly

at the same time as we're paving over a

lot more land um and that increases that

risk on top of the extra rainfall. And

this is something that insurers

increasingly are are very concerned

about. You know, it comes down to even a

garden level thinking about how people

are managing, you know, their own garden

space. Increasingly, people are paving

it over. You see more astroturf around,

putting in driveways, which maybe makes

their life easier. But insurers are

actually very concerned about that as a

as a risk that accentuates the impact of

surface water flooding and can cause,

you know, really significant property

damage and and really traumatic

experiences as well for for people

affected by it. Yeah, I've been very

interested to read your climate change

newsletter and the the content that you

put out regularly on those issues, the

paving over front gardens in London. I

mean, it's down to the micro level, but

but this is um where you see kind of

climate change really large. Um Joe,

another area that has been fascinating,

we were talking about how unusual it

used to be to have air conditioning in

London, but now it's becoming much more

common and maybe this is also something

that in many more cities is becoming

more common. I mean AC in the in the

United States takes up a huge chunk of

energy consumption. It's becoming much

more common across Europe and elsewhere.

>> You know, it is becoming more common

here. It's becoming more common across

Europe. We've seen installation rates uh

across Europe. Adoption of AC installed

in homes and businesses is is is low in

the UK, but people's interest in in

cooling down when these heat waves hit

is very high. We saw a huge jump in in

in purchases of these portable air

conditioning units and fans um you know

at retailers here in the UK. you know,

at Curry's saw like a 2700% increase in

portable air conditioning sales uh

year-over-year during that uh that that

May heat wave that we just had. Uh John

Lewis uh uh saw an 800% surge. While the

adoption rate, installation rate of

these air conditionings is is pretty low

in buildings, when that heat hits,

people will spend money to to stay cool.

>> But surely that's massively inefficient,

Olivia. I mean, and there is the the

pushpull, isn't there, between climate

change policy and then what people

actually do uh when the heat hits.

>> Yeah. So, part of the problem in the UK

is that we just haven't designed our

buildings really in any era, including

the modern era, to cope well with heat.

And so, um, you know, it doesn't

actually take a huge amount of heat for

people to start to get really

uncomfortable um sometimes in homes and

and other buildings as well, things like

care homes and hospitals. one of the

things the climate change committee

really highlighted and you know the the

current building policies especially in

London really try and dissuade people

from getting air conditioning um you

have to in a lot of places you have to

jump through hoops you have to get

planning permission if you're a lease

holder you own a flat it can also be

quite complex um and so what people are

actually doing is going out and buying

these um portable systems which the

types of ones that Joe references that

you can buy from Curry's or John Lewis

um which are as you say much less

efficient than a real kind of fixed

system. So, in some ways, we sort of

currently have the worst of of both

worlds. Um, because people are still

they need to be cool. Um, and their home

or or or whatever building they're

living in is not well adapted. So,

they're they're having to do something,

but doing something that's more sort of

fixed and permanent is is quite

difficult.

>> Just tell us a little bit about the

politics in the UK. I mean, climate

change is re a reality in countries

around the world, including in Britain,

but there is still climate denialism,

isn't there? How have you seen that,

Olivia?

>> Yeah. Well, I think a lot of people

thought that we'd sort of vanquished

climate denialism in the UK, and uh that

that's not currently the case because,

you know, like a lot of places, there's

been uh the rise of more populist

politics. Um and here, that is

particularly expressed in um the Reform

Party and you know, their policy around

climate change. We interviewed Richard

Ty on the Zero podcast. My colleague

Axhatrathi interviewed um him a few

weeks ago and you know he is very

dismissive of the human impact on the

climate and his his argument is really

well we should just adapt to it. You

know we should forget trying to cut

emissions. You know it's too expensive.

It's a waste of time. We should just

spend loads of money on adapting to it.

The problem with that is that if we kind

of allow climate change to run away um

and you know we get temperature rises,

we're already on course for way over 1.5

degrees of temperature rises by

midentury. You know, even more than

that, adapting to that, it's it's like

sort of trying to fill up a bucket

that's got holes in it. You're really

trying to keep up with something that is

is happening on a scale that we're just

not used to um as human beings. and the

cost of that, you know, he he says it's

fairly kind of minimal and it sort of is

is much more uh cost-ffective than

mitigating. I think there are a lot of

experts in the climate space that would

that would disagree with that. My thanks

there to Bloomberg's Joe Wartz and

Olivia Rodgard. Well, with former US

Secretary of State John Kerry and former

UK Prime Minister Boris Johnson both

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will have full coverage of the

convergence of climate and finance

across Bloomberg platforms. I'm Caroline

Hepka here in London. You can catch us

every weekday morning for Bloomberg

Daybreak here at beginning at 6 a.m. in

London. That's 1:00 a.m. on Wall Street.

Nathan,

>> thanks Caroline. [music] And coming up

on Bloomberg Daybreak Weekend, we'll

look ahead to price pressures down

under. I'm Nathan Hager [music] and this

is Bloomberg.

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[music]

This is Bloomberg Daybreak Weekend. Our

global look ahead at the top stories for

investors in [music] the coming week.

I'm Nathan Hager in Washington. It's not

just the Federal Reserve getting ready

for inflation data. This week we also

get a fresh look at how much prices are

rising in Australia. For more, let's get

to Doug Krner, host of the Bloomberg

Daybreak Asia podcast. Thanks, Nathan.

Last week, the Reserve Bank of Australia

warned that inflation is still too high.

RBA Governor Michelle Bullock said

inflation is likely to remain high for

some time as higher fuel prices feed

through to prices of other goods and

services. Now, this week, we'll get the

report on Australian consumer prices.

And to help us preview the numbers,

let's bring in Bloomberg economist for

Australia and New Zealand, James

McIntyre. James joins from our studio in

Sydney. Thank you for being here. So

last week, the RBA left its official

cash rate unchanged at 4.35%. Now, to be

fair, the central bank has raised rates

three times already this year to try to

get inflation back to target, and yet

price stability is still a problem. Does

it all come down to higher energy cost

as the result of the war in Iran?

>> Well, what the RBA's been worried about

there is that there was a lot of

strength in the economy at the end of

the year and it looked like in the

beginning of the year before the

outbreak of conflict with Iran. Things

were were going quite strong and they

were worried that inflation was was

going to take off a bit uh from the

other side of the economy. when you

throw an energy shock onto that, that

was when they decided to to pull the

trigger and and act. Um, and they did

that three times. So, it's unsurprising

that they did take a chance to take a

little bit of a breather um after three

rate hikes in a row, but they are still

concerned and really want to talk tough,

and they have done that. They've

continued to talk tough to try and make

sure they get inflation expectations

staying on a lock as the energy uh in

inflation shock works its way through

the system over the course of coming

months.

>> So from what I understand, James, it's

not just the headline reading that's a

problem. It's underlying inflation. I

think that's a little more concerning.

Do I have that right?

>> You do. You do. That's right. And so

what we've got with the headline is

actually we've had some retreat. Um

we've got a little bit of a pullback. uh

it was surprisingly weaker at the

headline number in in in April and that

was because of uh government initiatives

to to have fuel excise tax. So it really

uh helped to mute uh and damp some of

that energy shock at the bowser at the

at the fuel at the petrol pump uh for

for consumers. Uh we'll see a little bit

more of that in the May data. Um but

what we've got on the underlying

inflation is that's remaining a little

bit stickier 3.3% poss probably up to

3.4 uh on our numbers uh for the month

of May and that's above the RBA's 2 to

3% band. It's it has come off a little,

but there's a long way to go. And that's

what we think the central bank is

concerned about and and why even though

they're on hold now um and could be on

hold for quite some time, they're going

to continue to articulate a very

concerned and tough stance and and keep

that threat of further hikes alive.

>> So, what are you expecting to see in the

upcoming data this week when it relates

to consumer prices? Yeah. So, we're

expecting to see um on a month-on-month

uh outcome uh a decline in prices, a

pullback in those uh gasoline or we call

it petrol prices at the pump uh is a big

uh part of that story. Uh there are

usually some seasonal things that are a

little bit damper. But on a

year-on-year, we're expecting the

inflation uh at the headline level uh to

fall from 4.2 in April down to to four

for for May. Um but at the trim mean

level that's likely to stay elevated at

uh moving in the other direction from 33

to 34. These are the monthly datas

though uh data though that is a new

development for Australia. We've had a

monthly CPI now for uh for a little

while. The RBA is still focusing in on

the quarterly numbers and so we've got

another month the June data which will

then uh be the Q2 uh the second quarter

uh CPI. That's going to be the the big

key one that the RBA is really going to

be focused on.

>> So, what is the market right now

expecting in terms of further tightening

from the Reserve Bank?

>> Well, market expectations have uh pulled

back uh a little if we were to circle

back probably a month ago. Uh we were

seeing further hikes being priced in uh

by the market, but that has really

dialed back. And it's dial back for um

uh well one particular important reason

uh not just uh what's happened with uh

the reopening of the straight of hall

moves and and that news that that we

should see some uh easing of the energy

supply shock uh uh that's that's come

there that what we have seen

domestically is actually quite important

and we've seen the economic surprise

index for Australia that city bank uh

economic surprise index uh really fall

into deeply negative territory. It

wasn't just the April CPI surprising on

the downside, but the labor market uh

data surprised on the downside as well,

showing that we actually had a fall in

jobs and a spike up in the unemployment

rate. If we get some more signs of that

weakening in the labor market, that's

really going to cause a bit of tension

for the RBA with their dual mandate.

>> So, I understand that there is a bit of

softening in the labor market. And I

guess you could make the case that

that's to be expected given the

tightening that the RBA has already um

executed, if I can use that term, but

I'm curious about how well wages are

holding up right now.

>> Yeah. So wages at the private sector

level are okay. They're in the zone uh

in terms of the RBA's uh zone of

comfort. Um there we did have a minimum

wage decision. So there is a portion of

the labor market, there's a a federal or

a national minimum wage for for

Australia and and around about 20% of

wages across the economy are influenced

by an annual decision on that wage or

you know or or match it. And um and what

we had there was we had that minimum

wage uh increase come through at 4.75%.

And um that's a little bit higher than

we might have been expecting. what the

wage tribunal opted to do was to protect

uh low-wage workers from the impacts of

inflation that they experienced last

year. Now, unfortunately, what that

means is it pushes up those uh costs for

that section uh of uh the uh the the

labor market. And as a result, that

means it's a little bit more difficult

and makes inflation a little bit

stickier to come down, especially if

other workers in the other 80% uh of the

labor market have a look at what that uh

what those low-wage workers are getting

and say, you know, to their employers, I

want the same, please. That that is uh a

little bit of a challenge. So there's a

uh a little bit of I guess weakness in

the labor market that helps the RBA keep

a little bit of a lid on the risk of

that uh that fairly solid wage gain that

came through proliferating more broadly

uh across the overall wage complex and

keeping inflation pressures lingering or

sticky in the system.

>> So given everything that we're talking

about here, I'm wondering how well

household spending I is holding up. Are

things okay? Are they stable? Are they

beginning to soften a bit? What's

happening when it comes to household

spending?

>> Well, we had a we've got had the

household spending data for April show

that there was a little uh well a a

substantive dip month uh of about 1%.

But compared to a year, it's running at

just under 5%. Uh and that's in nominal

terms. That's an okay outcome. Um but

what we uh what we should be seeing is

we should be expecting that to fall.

It's not just um the the petrol prices

or those gasoline prices coming back

thanks to uh initiatives by the

government to to deliver some price

relief and tax relief on those. We've

got um rate cuts being a factor here,

but we've also got a negative wealth

effect coming through. Australia's house

prices uh have uh finally shown signs of

of cracking. There's a two-speed market

at play. smaller capital cities and the

and the uh the mining and resource uh

states of Western Australia and

Queensland, house prices continue to be

quite deliver quite strong and robust

gains there. But in the two major

capital cities, which are the big key

anchors for the economy, Sydney and

Melbourne, we've seen prices um

weakening since November last year

before the RBA uh started hiking rates.

Um and those rate hikes have exacerbated

especially at the top end of the market.

um uh have exacerbated that slide in

those house prices. And so we could be

seeing in those two major economies uh

two major markets, Sydney and Melbourne,

big anchors for the economy, a bit of a

negative wealth effect coming through

and weighing on the consumer side there

as well. So there's a lot of headwinds

on the consumer story uh right now. Uh,

and that should be something that uh,

well, the RBA is is going to be keeping

a close eye on and making sure that it

isn't something that tips over uh, into

too much of a downward spiral for for

demand, which could mean that that labor

market story goes from one of of

softness that helps keep wage pressures

uh, in check to one that actually is

heading more towards uh, a downturn that

could u, spill into a recession. James,

thank you so very much for helping us

understand the nuances of what is

happening right now in the Australian

economy as we look ahead to this week's

inflation data. James McIntyre here is

Bloomberg economist for Australia and

New Zealand. Staying in Australia, Prime

Minister Anthony Albani has resisted

calls for making deeper cuts to

immigration. That's even though

Australia is facing demographic

pressures. The fertility rate is at a

record low. To get some perspective, my

colleague Heidi Stradwatt spoke with

professorial fellow Roger Wilkins from

the University of Melbourne.

>> You kind of need one if you don't have

the other, right? We know the

replacement rate has been below target

for decades now. Are there options other

than migration given it continues to be

a political flash point?

>> Uh, not not a lot of options. I mean

it's uh declining fertility is not

unique to Australia but it uh um but it

does uh um pose a very difficult policy

problem. I think it's going to be

something that's very hard to turn

around. Uh I I mean policy can have some

impact in reversing it. But I I think uh

Australia's longerterm economic

interests are in maintaining a healthy

immigration program.

>> You're completely correct of course to

point out that this is not a problem

that's unique to Australia. you only

have to look to the likes of Japan to

see what that aging population future

might look like. But I do wonder, have

there been any successful policies when

it comes to encouraging and getting the

birth rate back up because we know that

things like, you know, baby bonus uh

haven't exactly been effective in the

longer term.

>> No. Although, of course, that was a

short-lived policy particularly when uh

so in the early 2000s when Australia had

quite large cash payments made to new

parents. uh you know it reached a peak

of around $7,000 Australian uh per per

child uh um but but that only lasted for

a very short period and we did see a

bump up in fertility rates at the time.

So I think there is some merit in

programs like that where uh large cash

payments at around the time of birth.

They have a salience that perhaps works

better than things like child care

subsidies which can be uh somewhat uh

difficult for for for people to

understand and and really fully

appreciate in in in terms of the fact

factoring in whether to have a child or

not. the trifecta of a falling birth

rate of potential limitations on

migration of an aging population. What's

the overall impact on the labor market?

>> Well, well, I mean, it's it's it's

certainly, you know, in a in the broader

context, Australia is an aging

population. Uh, not aging as fast as

many other OECD countries, but

nonetheless, uh, aging. And so, you have

a smaller proportion of your population

of prime working age. and and uh and so

so that uh certainly raises challenges

for you know longerterm uh living

standards uh and it also that that

changing structure of the population

also has implications for the structure

of the labor market.

>> That was Roger Wilkins, professorial

fellow from the University of Melbourne

speaking with Bloomberg's Heidi Strad

Watts. I'm Doug Krer. You can catch us

weekdays for the Daybreak Asia podcast.

It's available wherever you get your

podcast. Nathan,

>> thanks Doug. And that does it for this

edition of Bloomberg Daybreak Weekend.

Join us again Monday morning at 5:00

a.m. Wall Street Time for the latest on

markets [music] overseas and the news

you need to start your day. I'm Nathan

Hager. Stay with us. Top stories and

global business headlines are coming up

right now.

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