This is Bloomberg Daybreak Weekend,

[music] our global look at the top

stories in the coming week from our

Daybreak anchors all around the world.

Straight ahead on the program, we look

to the Fed's preferred gauge of

inflation and how it could affect policy

going forward. [music] I'm Nathan Hager

in Washington.

>> I'm Caroline Hepker here in London,

where we're looking ahead to London

Climate Action Week.

>> I'm Doug Krizner looking ahead to the

latest reading on consumer inflation for

Australia. [music]

>> That's all straight ahead on Bloomberg

Daybreak Weekend. On Bloomberg 1130 New

York, Bloomberg 99.1 Washington, D.C.,

Bloomberg 92.9 Boston, DAB Digital Radio

London, Sirius XM 121, and around the

world on bloombergradio.com

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 Stewart Paul, US economist for

Bloomberg Economics. And I'd have to

think, Stewart, after what we heard from

the new Fed Chair Kevin Warsh 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 inputs 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

Warsh 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 the CPI and PPI data

you alluded to, we are still well above

target when it comes to the Fed's 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 even by the Fed's

preferred measure.

>> 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 Strait 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 reading

is the last real inflation reading for

the month of May.

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, you know, the

memorandum of understanding, the

reopening of the Strait of Hormuz 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,

>> Yeah.

>> 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

pushback 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 of course barring any

sort of escalation uh or

>> re-escalation of the war in Iran.

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

wildcard. 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 a 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 forecast included in the

summary of economic projections. We also

heard it in the chairman's voice and 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, are 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 earning 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 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 other traveling cruise

names, to say the least, since the war

started in in February. But now, with

the US and Iran saying that they've

reached an interim agreement to reopen

the Strait of Hormuz, sentiment is again

rising in this hard-hit sector. Worth

mentioning that Wall Street still

remains cautiously optimistic about the

stock. Stifel may have put it best, that

analyst saying that trading cruise

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

booking 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 uh 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

bellwether 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 Ross, 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. Barclays 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 longer-term 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 pretty solid run

since even before the start of the year.

When you have

the the FedEx Freight business in the

rearview, how's 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 even more reason to keep an

eye on FedEx and FedEx Freight. Not only

that, on Thursday, we're going to hear

from Darden Restaurants. I mean, every

time I think about Darden, I think about

Olive Garden, but I mean, I'm always

surprised by how many restaurants are

under the Darden umbrella, not just for

casual dining, but fine dining as well.

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

the parent company behind popular chains

like Ruth's Chris, LongHorn Steakhouse,

and my dad's personal favorite Cheddar

Scratch Kitchen. But

>> [laughter]

>> 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. Citi 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 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 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 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 food is

going to be very impacted by GLP-1s,

especially as they continue to grow in

popularity in the US. But for companies

like a Darden 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 [music] week.

>> That's Bloomberg Equities reporter

Avalon Pernal. Coming up on Bloomberg

Daybreak Weekend, we'll look ahead to

London Climate Action Week. I'm Nathan

Hager and this is Bloomberg. [music]

This is Bloomberg Daybreak Weekend,

[music] our global look ahead at the top

stories for investors in the coming

week. I'm Nathan Hager in Washington.

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 Hepker.

>> Nathan, would you believe it? The UK,

which is rarely known for hot weather,

now faces its second heatwave 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 focused minds on our

collective dependence on fossil fuels,

Europe and the world must now grapple

with another cost. The $20

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.

Sherry Hilditch 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 Sherry Hilditch, the CEO of

Climate Impact Partners there speaking

to Bloomberg. But will that be enough to

combat the panoply 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 Wertz and

Bloomberg's green reporter Olivia

Rodgarth. Welcome to both of you and

thanks for taking the time to speak to

us. Joe, let's start by thinking about

the heatwave looming in Europe right

now. What does it mean for the

environment and for the economy?

>> Right. So, that heatwave is building

right now in in France. Really, this is

is kind of where things are really

starting to to cook over there. And this

is a one of these high pressure systems

that we saw earlier

in late May, so a 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 call they call these

tropical nights. These are when

temperatures don't dip below 20° at

night. We 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

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 nuclear energy and they have to

limit output. So, EDF in France has

already said they might have to start

limiting power at these plants and so

the effects of this heat are already

starting to 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. So, there are lots

of consequences, aren't there, for

people? There's also there've been quite

a lot of talk about the El Niño effect.

>> 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

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 this El Niño 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

it it has global ramifications. It

affects weather patterns all over the

world. It 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 in the Middle

East. And you know, big impacts

especially in in food systems and

agriculture, drought, wildfire, severe

flooding in in some some areas. So yeah,

the last one, the one in last big one in

2015 and 2016 was like 7.6 trillion

dollar 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's 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.

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. We've had this record setting

May in terms of the temperatures, but

now very very wet June. It's not just

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 degree temperature heat waves. I'm

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

than Fahrenheit [laughter]

we'll forgive you

Uh May which is very unseasonably 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 would

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 where

you see kind of a climate change really

writ 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

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

you know at retailers here in the UK,

you know, at Currys saw like a 2700%

increase in portable air conditioning

sales year over year during that that

that May heat wave that we just had.

John Lewis

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 push

pull isn't there between climate change

policy and then what people actually do

when the heat hits.

>> [snorts]

>> 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 you know, it doesn't actually

take a huge amount of heat for people to

start to get really uncomfortable

sometimes in homes and and other

buildings as well. Things like care

homes and hospitals that was one of the

things that 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. 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're in a flat, it can also be quite

complex. And so what people are actually

doing is going out and buying these

portable systems which the types of ones

that Joe references that you can buy

from Currys or John Lewis

which are as you say much less efficient

than a a real kind of fixed system. So

in some ways we sort of currently have

the worst of of both worlds

because people are still they need to be

cool and their home 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

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 that

that's not currently the case because,

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

been a 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 Tice on the Zero

podcast. My colleague Akshat Rathi

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° of temperature

rises by mid-century, 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's sort of is is much more

cost-effective 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 Watts

and Olivia Rudgard. Well, with former US

Secretary of State John Kerry and former

UK Prime Minister Boris Johnson both

scheduled to speak at London Climate

Action Week in the next few days, we

will have full coverage of the

convergence of climate and finance

across Bloomberg platforms. I'm Caroline

Hepker here in London. You can catch us

every weekday morning for Bloomberg

Daybreak Europe beginning at 6:00 a.m.

in London. That's [music] 1:00 a.m. on

Wall Street, Nathan.

>> Thanks, Caroline. And coming up on

Bloomberg Daybreak weekend, we'll look

ahead to price pressures down under. I'm

Nathan Hager, and this is Bloomberg.

>> [music]

[music]

>> This is Bloomberg Daybreak weekend, our

global look ahead at the top stories for

investors in the coming [music] 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 Krisner, 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 has 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. Uh uh 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 halve fuel excise tax. So, it

really uh helped to mute uh and damp

some of that energy shock at the bowser

at the 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 a pullback in those uh gasoline or we

call it petrol prices at the pump uh is

a big part of that story. There are

usually some seasonal things that are a

little bit damper, but on a year-on-year

we're expecting the inflation at the

headline level to fall from 4.2 in April

down to to four for for May.

But at the trim mean level that's likely

to stay elevated at moving in the other

direction from 3.3 to 3.4. These are the

monthly data

data though that is a new development

for Australia. We've had a monthly CPI

now for 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 be the Q2

the second quarter 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 pulled

back a little. If we were to circle back

probably a month ago,

we were seeing further hikes being

priced in

by the market, but that has really

dialed back and it's dialed back for

one particular important reason

not just what's happened with the

reopening of the Strait of Hormuz and

and that news that that we should see

some uh

easing of the energy supply shock

that's that's come there. What we have

seen domestically is actually quite

important and we've seen the economic

surprise index for Australia that City

Bank economic surprise index really

fallen to deeply negative territory. It

wasn't just the April CPI surprising on

the downside, but the labor market 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 I 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 is 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 that's a a federal or a

national minimum wage for for Australia,

and and about around about 20% of wages

across the economy are influenced by an

annual decision on that wage, or you

know, 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 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 it 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

well,

a substantive dip month-on-month

of about 1% but compared to a year, it's

running at just under 5% and that's in

nominal terms. That's an okay outcome.

But what we what we should be seeing is

we should be expecting that to fall.

It's not just

the the petrol prices or those gasoline

prices coming back thanks to initiatives

by the government to to deliver some

price relief and tax relief on those.

We've got

rate cuts being a factor here, but we've

also got a negative wealth effect coming

through. Australia's house prices have

finally shown signs of of cracking.

There's a two-speed market at play.

Smaller capital cities in the and the

the mining and resource 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

weakening since November last year

before the RBA started hiking rates

and those rate hikes have exacerbated,

especially at the top end of the market,

have exacerbated that slide in those

house prices. And so we could be seeing

in those two major economies

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

right now

and that should be something that

well, the RBA is is going to be keeping

a close eye on and making sure that it

isn't something that tips over 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

in check to one that actually is heading

more towards a downturn that could

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 is Bloomberg economist for

Australia and New Zealand. Staying in

Australia, Prime Minister Anthony

Albanese 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 Strout Watts 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

declining fertility is not unique to

Australia, but it

but it does uh

pose a very difficult policy problem. I

think it's going to be something that's

very hard to turn around.

I mean policy can have some impact in

reversing it, but I think

Australia's longer-term economic

interests are in maintaining a healthy

immigration program.

>> You're completely correct, of course, to

point out 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

haven't exactly been effective in the

longer term.

>> No, although of course that was a a

short-lived policy, particularly when so

in the early 2000s when Australia had

quite large cash payments made to new

parents.

It reached a peak of around $7,000

Australian

per child

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

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

somewhat

difficult for

people to understand and really fully

appreciate in in terms of

the fact factoring in whether to have a

child or not.

>> The child factor of a falling birth

rate, of potential limitations on

migration, of an aging population,

what's the overall impact on the labor

market?

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

in the broader context Australia

is an aging population not aging as fast

as many other OECD countries but

nonetheless aging and so you have a

smaller proportion of your population of

prime working age and and and so that so

that's

certainly raises challenges for you know

longer term

living standards

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 Stroud Watts. I'm Doug Krizner,

you can catch us weekdays for the

Daybreak Asia podcast. It's available

wherever you get your podcast. Nathan.

>> Thanks Doug and that does [music] it for

this edition of Bloomberg Daybreak

weekend. Join us again Monday morning at

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latest on markets overseas and the news

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