# Big Tech AI CapEx and Global Macro Shifts

**Podcast:** Bloomberg Daybreak: US Edition
**Published:** 2026-01-30

## Transcript

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This is Bloomberg Daybreak Weekend, 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'll look to the January Jobs Report and how that could affect Fed policy.
I'm Nathan Hager in Washington.
I'm Carolyn Hepke in London, where we're discussing snow, ice, and geopolitics at the 2026 Winter Olympics in Italy.
I'm Doug Prisoner, looking ahead to the snap election in Japan and what the outcome means for the Japanese economy.
That's all straight ahead on Bloomberg Daybreak Weekend.
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Good day to you.
I'm Nathan Hager.
Let's take a look now at some stocks making news in the week ahead.
I'm Nathan Hager with Mandeep Sang, Global Head of Tech Research at Bloomberg Intelligence.
Great to have you on as we're going to be looking ahead to a lot more big tech stocks in the week ahead.
Uh, what are we expecting when it comes to earnings from Google parent alphabet, Mandy?
Look, I mean, what we saw with Meta was uh, you know, accelerating top line growth.
And in the case of Google, both the search business as well as the YouTube business have, I would say, modest expectations going in the quarter, you know, low to mid-teens growth.
So uh I mean, we felt double-digit growth uh for Alphabet over the last few quarters was very impressive given, you know, the threat from Chat GPT.
But I think Meta has really raised the bar in terms of uh digital ad growth uh in the fourth quarter.
So I would be looking for accelerating top line growth, at least high teens growth for YouTube and uh you know, low to mid-teens growth for uh the core search business of Alphabet.
Since you mentioned Meta platforms, we should say that uh the uh AI spend from Microsoft seemed to spook a lot of investors last week, given that uh Alphabet has its Google Cloud business.
Could that be a concern for investors there when it comes to AI spend in the cloud?
You're right.
I mean, uh, what Microsoft Sprint has shown is you can't really miss the cloud growth numbers.
So in the case of uh Alphabet, expectations are Google Cloud will have at least 35% growth.
And based on the work that we have done, uh, I mean, uh, Google really has had some very impress impressive uh deal wins uh this quarter uh in their cloud segment.
So uh chances are they should do better.
And remember, Google has their TPUs, so they shouldn't be as supply-constrained as Microsoft probably was uh in the quarter with the GPU situation.
So uh my guess is Google cloud segment would see sequential acceleration and they should be the consensus number handedly.
And how do you see Google's TPU processors faring compared to the the the GPUs that we get from Nvidia?
I mean, if there's one theme that we have heard so far this earnings season is AI infrastructure demand remains insatiable, and all these companies are wanting to get as much uh you know compute capacity as they can.
So Google's TPUs uh, you know, are used both internally for Google overviews and across their family of apps, as well as uh they're used on Google Cloud.
And so from that perspective, I do think uh, you know, Google should be able to show the most efficiency when it comes to AI infrastructure, and that should get reflected in their gross margins, which I expect to be better than the rest of the hyperscalers.
We're also going to hear from Amazon this week.
They report their earnings.
Uh, what are you expecting from their cloud unit, AWS?
Yeah, I mean, uh, you want to see all these uh cloud companies show sequential acceleration.
It didn't happen with Microsoft, uh, hence we saw that negative reaction.
Uh and in the case of AWS, I would say expectations again are like for low 20% growth.
So given they are the largest cloud provider, uh, I mean, uh they should be able to beat those numbers.
But uh look, what we have heard so far is supply constraints are real when it comes to AI compute capacity, and that may have a bearing on whether AWS ends up uh beating those consensus numbers or not.
Is low 20% enough to wow investors?
No, but you want to see that sequential acceleration.
So uh I mentioned about the size of AWS, so that's uh almost 135 billion dollar run rate business for Amazon.
Contrast that with uh Microsoft, which is more uh 100 billion and Google Cloud is like 60 billion run rate.
So given their size, I mean, low 20% uh would be inline, but anything more than that would be impressive, and uh I I think that would uh help the stock.
And along with uh Amazon and Alphabet, another A in big tech reports this week, advanced microdices.
How's how's the computer chip business looking right now, Mandy?
I mean, look, uh, Meta just told us they plan to spend up to $135 billion dollars in CapEx, which is a 70% increase from uh what they spent in 2025.
So uh we were modeling like 50% increase in capex from hyperscalers going into 2026.
Chances are uh that number will be revised upward, and so it will trickle down to the likes of AMD, which is the you know the second biggest uh GPU uh provider after Nvidia.
And so to my mind, uh AMDs deal with OpenAI and some of the other business that they have won uh over the last few months should uh help, you know, uh exceed expectations uh when when they uh print their results.
Does AMD need to show more market share compared to NVIDIA?
I think this is such a big market that everyone is realizing that you don't need to uh you know win market share from NVIDIA as long as you have a good product that uh you know companies are interested in buying, and open AI has that uh deal with AMD now.
That is a big uh leap of faith in terms of AMD's capabilities to supply, you know, six gigawatts of power uh that has all AMD chips.
And uh I I think that should help them win more enterprise business over time.
Appreciate this, Mandeep.
As always, that's Mandy Psying, global head of tech research at Bloomberg Intelligence.
We move next to some key economic data in the U.S.
Our first full look at the labor market for 2026 so far, comes out this Friday at 8:30 Wall Street time, and we get non-farm payrolls for January.
Ahead of that, we're joined by Michael McKee, our international economics and policy correspondent for Bloomberg Radio and Television.
Mike, the theme we keep hearing from the data leading up to this report is this is a low hire, low fire labor market.
So uh are we expecting to see that reflected in the the big daddy report coming out this week?
That is what we are expecting to see.
Uh the interesting thing about this report, of course, is it's the first one since the government shutdown ended that isn't going to be distorted by the government shutdown.
It's a full month of data collected and uh the normal processing time.
So to the extent that it uh tells us something about where the labor market is, it should be relatively accurate.
Uh the Fed last week in their assessment of the economy at their meeting said that uh while we were still seeing low hiring, the unemployment rate seems to have stabilized.
So they seem to think that things are getting a little bit better.
Okay, so how could we see that reflected in the data itself?
Where are we seeing signs of steadying in the labor market?
Well, the biggest is in the unemployment rate.
It fell last time, last month for uh the December number uh to 4.4 percent, and we're not expecting that to change according to the economist survey by Bloomberg, stays at 4.4 percent.
So a sign of stability there.
And the interesting thing is the uh December payrolls report was only 50,000.
Obviously, we will get some sort of revision, but right now we're looking at uh 70,000 is the forecast by economists for January.
So that would be a little bit stronger than we saw in the month before.
But still pretty subdued compared to where we've been historically.
So what could this mean for the Federal Reserve going forward?
Well, the Fed doesn't know, and that's one of the things that they're gonna be looking at.
The whole question that uh surrounds all of these low numbers, is it because companies don't want to hire right now, or is it because they don't have people to hire?
In other words, has the uh administration's crackdown on immigration and uh the ejection of people uh from the economy uh and uh scaring people into staying home from work, does that mean that there are fewer people to hire?
And that's one of the big reasons that we're not seeing the same kind of payroll growth.
And it's gonna take a while to figure that out.
We do, however, Nathan, get a an update on the population estimates.
This comes once a year in January, and that should change that should that that will make December and January numbers not quite comparable, and it does uh figure to change the labor force participation rate, perhaps uh a little bit.
So um we'll s we we'll be starting fresh, but also uh having some sort of idea of what's going on.
Yeah, there's also the big question about whether artificial intelligence is playing a role in labor market dynamics as well.
We've heard that from a number of Federal Reserve speakers.
Where's the thinking on that right now?
Well, the thinking is that artificial intelligence will take a larger and larger share of the labor force, but we're not completely clear on where it is.
The logical answer is that uh we'll see lower paid, lower skilled people lose their jobs to computers.
But of course, people are talking about uh uh uh folks in the finance industry or folks in law, uh especially at the uh lower ends of the beginning uh the the interns, uh they would uh lose their jobs because then the computer can do it all.
So we are expecting some sort of change, but the question is how fast?
And that's where some people at the Fed are concerned that maybe we're getting ahead of ourselves in terms of the uh in term in terms of the impact on today's jobs reports because companies are starting to adopt this stuff, but they haven't had a lot of time to figure out who they don't need anymore.
And of course, there's a lot of question, a lot of focus at the White House on job growth.
The the whole idea of trade policy coming out of the Trump administration is that it's going to boost manufacturing jobs.
Are we seeing any signs that that is starting to take hold?
No, uh, since the president came to office, we've lost manufacturing jobs, and that's been one of the flaws in their whole argument.
Uh, we are not seeing manufacturing payrolls go up.
Now we don't have an estimate yet for the change in manufacturing payrolls.
That'll come later in the week as we get closer to the release.
But in December, we lost 8,000 uh manufacturing jobs.
So there's still a lot uh of concern about where this all goes and whether or not uh we're going to see an increase in manufacturing jobs because what tends to happen is that uh if a company builds a new factory, they put a lot of machines and robots and things in there.
And so you don't get the additional jobs that you thought you might.
Thanks for this, Mike.
As always, that's Michael McKee, Bloomberg International Economics and Policy Correspondent ahead of the non-farm payrolls report for January this Friday at 8 30 Wall Street time.
And coming up on Bloomberg Daybreak weekend, we'll look ahead to the 25th Winter Olympic Games in Italy.
I'm Nathan Hager, and this is Bloomberg.
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.
Up later in our program, we'll look ahead to a general election in Japan and we'll focus on a policy decision from the Reserve Bank of Australia.
But first, the 25th Winter Olympic Games kick off in Italy in the next few days.
Though the event promises fireworks on the sporting stage, could diplomatic tensions between the US and Europe threaten to upstage the proceedings?
For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepger.
Nathan, I'm tempted to say that delivering the Milano Cortina 2026 winter Olympics may be as tricky as pulling off one of those wild stunts in the freestyle big air competition.
Then there's the issue of delivering the event, including all the venues in the Alps, on time and in some way sustainably for this Olympics, which begins on the 6th of February, followed by the Paralympics a month later in March.
Bloomberg understands that ICE agents will be in Italy as part of the security details for the Vice President JD Vance and Secretary of State Marco Rubio, according to an official from the U.S.
Secret Service.
But the agency's role in an immigration crackdown at home is stirring opposition overseas.
Now this year's Olympics is also set against a backdrop of increasing division between the United States and Europe.
Recently, the NATO Secretary General Mark Rutter told the European Parliament that the Transatlantic Alliance is vital to the region's survival.
So when President Trump is doing good stuff, I have a place.
And if anyone thinks here, again, that the European Union or Europe as a whole can defend itself without the US.
Keep on dreaming.
You can't.
We can't.
We need each other.
That was NATO's Mark Rutter speaking there.
So will Italy's winter Olympics feature more ice than they bargained for.
Joining me now to discuss is Bloomberg's Milan Bureau Chief Tommaso Ebhart.
Tommaso, let's start by thinking about these winter Olympics taking place in the Alps in the next few days.
I suppose the first big question, and maybe it's always the case for the Olympics, are all the venues going to be ready?
So those games will be spread all over the north of Italy, not just on the Alps.
The main city where the opening ceremony will be Friday is Milan.
And then you're gonna have uh the uh different sports to be held in different locations.
Cortina, where you're gonna have uh the women ski races uh you're gonna have in Lombardy, in Bormio, you're gonna have uh games uh also in the uh Sutirol region.
So what is interesting is that uh uh somehow to reduce the cost of the Olympics, uh they have been spread to reflect location where essentially most of the venues uh were already built and ready.
Uh, for example, uh the biathlon will be held uh in Antelholt, which is already one of the most famous locations in the Alps for this kind of sport.
There are some new venues, especially one in Milan for ice hockey, which was just completed.
Uh, there were just uh some criticism uh about how is it built, about the quality of the ice, but it looks like it's all almost ready.
If you walk around the city in Milan, you see a lot of temporary building that will be used for the Olympics.
While what I'm hearing, for example, that uh in Cortina Adam Pezzo on the Alps, not all the everything uh that was meant to be built for the Olympic uh is ready, but for sure the infrastructure, there was a huge investment in infrastructure, and this is what probably was the most important investment for those uh Olympics.
It's also really interesting Olympics because it's one of the first times in a long time that a winter Olympics is going to be sort of within easy reach of US scheduling.
And yet, maybe a lot of the build-up to the winter Olympics is going to have been dominated by this spat, this um disagreement uh around ICE uh agents, maybe or staff being involved in the winter Olympics somehow, maybe just to protect high-ranking US officials who are going to be visiting, but there's been quite a lot of pushback about it.
Can you describe how the Italian government's been handling it?
In the last week, uh it was a high hut on the debate uh in Italy, uh the involvement of ICE in the Olympics.
Uh, there were some Italian officials who protested quite vigorously, including Milan Mayor uh Giuseppe Sala, who, following uh the latest uh involvement of ICE in the US said they're not welcome in Milan.
Then for days, uh Italian official somehow tried to keep the situation under control until there was a meeting between the Italian interior minister and the US Embassy in Rome.
After that, it was clear that ICE uh agents will be involved just uh within their uh domestic offices, so that means they will be deployed in the US Consulate.
Uh, and this somehow has uh calm a little bit attention.
Still, some Italians are protesting, clearly, and the Italian government had clarified uh which will be the involvement of uh ICE uh in the in the Olympics, and I have to say that clearly the news uh creates uh uh create a lot of attention.
Yeah.
And Giorgio Maloney, of course, that the Prime Minister is often seen as as a Trump ally.
Um I suppose there's also maybe a question that whilst the Olympic officials want to present this, want to present sports, as is so often the case as a kind of unifying message, there's a danger that it will highlight the divisions between Europe and the US that we've seen, you know, geopolitically.
That's going to be surely quite hard to handle.
Clearly, Maloney is seen as one of the European uh leader closer uh to Trump.
She is a key figure at the moment uh in uh Europe, also because of uh the her closer ties than others uh with the Trump.
That doesn't mean that they are always on the same page.
For example, uh on Greenland, uh uh Maloney was uh aligned with the rest of the European leaders um while answering to Trump's uh Trump's request.
I think that what you said is is clearly an interesting aspect during Olympics, uh, not only the Olympic Committee, but you know, the buzz should be on sport and not uh on geopolitical tension.
But you know, we're living uh quite uh I would say a very interesting time in terms of geopolitical news.
Uh, uh if you want to call them interesting, and so clearly this is part of the public debate and will be also during the Olympics for sure.
The eyes of the world will be on Milan for the opening ceremony and then on the out for the Olympics.
No doubt, I'm sure people are also getting very excited about it to watch.
I mean, what are usually just spectacular events, aren't they?
Um, the acrobatics and the kind of aerial displays, snowboarding and skiing and so on.
Which sort of brings me to snow.
The other aspect of this is that climate change is affecting the Alps so deeply, and there's been a lot of anticipation about how much snowfall um has been arriving, you know, the that there's been in the days leading up to this, and the creation obviously of um fake snow, you know, where you kind of generate it for the ski slopes.
Climate change is also huge.
Good news.
In the last couple of weeks, there has been uh heavy snowfalls on the Alps and on the Dolomites that were uh still stirred in uh summer mood uh until uh a few days ago.
So there will be white Olympics, it's quite happy, but for sure, as happens uh nowadays quite often in the Alps, most of the snow which uh was prepared uh for the Olympics was uh um is the snow that is uh also being prepared for tourists because you know the ski industry and the tourism industry is crucial.
The the atmosphere is changing, the altitude when no snow is usually expected, and it has some cost because if you want to ski and there is no snow, then you have to make the investment, and this is clearly a consequence of the uh higher temperatures we are seeing.
Lastly, Tommaso, um, what do you expect in terms of the economic impact of the games?
There's also been you know this idea of sustainability.
How do you make the Olympics every four years, whether it's frankly winter or summer, a bit more sustainable?
You've sort of talked about that with the reuse or the using of current venues, but the economic impact, what do you think?
So one of the main aspects of this Olympic Games, this winter edition, is uh that to avoid uh building uh uh new venues just for the Olympics that you won't be used anymore.
That's why uh the uh games will be held in uh almost 10 different locations where you already had the infrastructure ready.
Uh in Italy we had the Olympics, the winter Olympics in 2006, uh in Turin and the Piedmont region, and there are some some venues, especially one for the Bob, who has not been used since those Olympics.
So the plan has been since the beginning to avoid this risk, and that's why you're gonna have the games in very different locations.
So the costs will uh go down, and this is also a matter of sustainability.
The impact of the gains, we're talking about five billion euros revenue and investment for the gains.
The impact in this country is that uh essentially the games uh were used to create new infrastructure, for example, road infrastructure to go to Cortina d'Ampezzo.
A couple of new tunnels were just inaugurated a few days uh before the Olympics uh are starting.
So it's a way somehow to boost infrastructure in Italy, which is one of the main issues of the country.
Yeah, absolutely.
Great Britain sending 53 athletes, the United States, more than 200.
Italy's actually got close to 200 athletes who are going to be going there.
But as you say, uh tourism numbers will be something that will be watched closely.
It's it's a huge platform, isn't it, for Italy.
Tomaso, thank you so much for being with me.
Be an interesting few weeks.
Thank you, Ciao.
Bloomberg's Milan Bureau Chief Tommaso Ebhardt, and we'll be bringing you any interesting news stories from the Olympics, 6th of February to the 22nd of February, of course, in the coming few days.
I'm Caroline Hepke 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 a.m.
on Wall Street.
Nathan.
Thanks, Caroline.
And coming up on Bloomberg Daybreak weekend, we'll look to Japan, where a general election is set for February 8th.
I'm Nathan Hager, and this is Bloomberg.
This is Bloomberg Daybreak Week, and our global look ahead at the top stories for investors in the coming week.
I'm Nathan Hager in Washington.
We go to Japan next, where a general election is set for February 8th.
Prime Minister Takaichi's Liberal Democratic Party is likely to increase seats and gain a majority in the lower house.
For a look at what the outcome could mean for the Japanese economy, let's go to Bloomberg's Doug Chrisner, host of the Daybreak Asia podcast.
Nathan, in late January, Japanese Prime Minister Takeichi dissolved Parliament and called for a lower house election.
It is now set for February 8th.
Now, markets have already expressed a bit of unease to help us understand what's at play.
Let's bring in Bloomberg's Paul Jackson.
Paul is a member of the EcoGov team looking at Japan and South Korea.
Thank you for being here.
Can we begin with a backstory on how we got here and why Takeichi called for the snap election?
The ruling party in Japan, the Liberal Democratic Party, has been struggling to hold on to power in recent elections.
Voters are very unhappy about uh inflation.
It's the first time they've been experiencing inflation in a generation.
It's putting a lot of pressure on households.
And uh they're wanting uh the government to kind of take control of this.
Also, we have a country that's uh, you know, surrounded in Asia by various uh security concerns.
And since she became Prime Minister just three months ago, uh, she's been riding high in the opinion polls.
Now, you could think it's a bit cheeky to go straight to the electorate uh when you're less than a quarter through uh your your leadership.
But she's uh uh clearly trying to take advantage of those high opinion poll ratings and the idea that look, I am a leader with identity.
I can be more assertive as a leader in Japan, and I can make Japan more assertive, give more identity to Japan, and really Takaichi is gambling on this personal appeal to the electorate in the style of former leaders like Shinzo Abe and Junichiro Koizumi to uh appeal directly to the electorate rather than through the party and get people to vote uh for her.
And she's put her career on the line because imagine if she doesn't extend a razor thinner majority that she's got at the moment.
I mean, she's she's literally one seat majority at the moment on 233 in the more powerful lower house.
And she said that the goal is to extend that majority, and if she doesn't, then she's likely to step down.
So among her objectives, so you mentioned how inflation is affecting the average consumer in Japan.
She has proposed a tax cut on food.
Is that right?
Is that a part of the strategy?
That is a part of the strategy, and the ruling party has been uh very reluctant to go down this path in previous elections, even though pretty much all the opposition parties have been uh calling for this, or something similar related to the sales tax.
Instead, she's embracing it and saying, No, no, let's do this.
We'll do it temporarily, we'll do it for two years, and it's to reduce an eight percent tax on food down to zero during that time.
Now, that sounds uh okay so far.
There's going to be a loss of revenue.
This is not on the scale of some kind of like the former UK Prime Minister Liz Truss.
It's not that kind of scale of loss of revenue or tax breaks, but it is a significant amount.
It's five trillion yen.
How are you going to pay for that?
Now, the problem is for two years that doesn't sound too bad.
But can you then politically raise or return the tax back to eight percent?
Now that's something policymakers have had difficulty doing in the past, and I think that's why markets have been on edge about the outcome of this election.
So you alluded to a little bit of the geopolitical tension in the neighborhood right now.
I'm thinking of Takeichi's comments regarding Taiwan and how that offended uh Beijing.
Well when it comes to the issue of military spending, I know that Japan has a pacifist constitution.
Is this something that we should look for?
That there may be a little bit more money allocated to defense.
I think it's uh certain that uh Takaichi, if she wins, will continue to ramp up defense spending in Japan.
One of the first things she did when she became Prime Minister was to bring forward a target of making defense spending uh two percent of annual GDP.
Now that figure is based on 2022 GDP, so it's a little bit out of date, but she brought forward that target by two years, so she's already ramped up defense spending and is essentially uh promising more.
We've just had uh Elbridge uh Colby in in town, and uh uh obviously he's uh uh one of the main advocates for US allies ramping up their spending, and uh the kind of message that Takaichi has been delivering is kind of music to the ears to the current US administration, I'd say.
What about the issue of immigration and the growing presence in Japan of non-Japanese?
Well, we have uh record number of foreigners now working in Japan.
The numbers have gone up again, and this is a concern for those pockets of Japan where you have a large concentration of foreigners working either in manufacturing, as also much uh wider use of foreign workers in retail as well.
And for some voters, this has put them in a position of uncomfortableness, the sudden influx of people from other countries, while their feeling that their kind of uh take-home pay with the inflation and the the costs of that are running the households each month is getting tougher and tougher, and yet people are coming in from abroad and getting work.
So, for a certain segment of Japan's population, it's making them feel very uncomfortable and beleaguered.
And like, hey, wait a minute, what's going on?
Don't forget we've also got 42 million people visiting Japan last year.
A record number of foreigners entering the country and going to all the tourist sites and clogging up some of the main cities.
For some Japanese, this is making them feel really awkward.
And they've been voting for some uh other parties, including the far right Sanseito, on that specific issue.
So Takaichi has been giving some more robust kind of policy views on what to do in terms of regulations and rules concerning entry and uh uh foreigners in Japan, and also the key element of uh regulations on buying property by foreigners in Japan.
Is there a robust debate when it comes to how tourism can benefit the economy?
I think that since both the time of uh Koizumi and Abe, the idea that an increase in tourism to Japan can help the economy uh has been uh one of the key kind of elements as a as a growth driver, not the main one, but certainly a significant one.
And we've seen that really escalate uh in recent years.
Paul, we'll leave it there.
Thank you so very much uh for helping us preview the election in Japan.
Bloomberg's Paul Jackson, he is a member of the EcoGov team looking at Japan and South Korea.
So the other event on our radar for the week ahead is the policy decision for the Reserve Bank of Australia.
To provide some insights.
Let's bring in Bloomberg's James McIntyre.
James is an economist for Australia and New Zealand at Bloomberg Economics.
Thanks for being here.
Can we set the stage by looking at the story on inflation down under?
In the last week?
The market's got a very hot reading on CPI.
Do you think that's going to impact the thinking of the RBA?
We've got a very, very strong CPI outcome that came through for the uh the final quarter of 2025.
What's been happening in Australia is that the Statistics Bureau has finally, after many, many years of effort, moved to a monthly CPI.
But we've got a transition going on in this data, and it's resulting in a lot of very volatility and sticky moves.
So it's going to be a tough one for the RBA to analyze and take on board.
But what they do, if we look at the headline figures out of it, especially this trimmed mean measure, which is uh taking out some of the volatility out of the data, and it's the measure that the RBA uh has reinforced that they will be looking at.
The quarterly trimmed mean measure for the RBA came in at 0.9 quarter on quarter and 3.4 year on year.
And that's a that's above the top of the RBA's target band.
Two to three percent is uh inflation, angling for two and a half percent midpoint is what the RBA is is targeting, and inflation has come in at three point four percent.
Instead of gradually moving back, it's ticked up.
It's it's resulted in market pricing and expectations shifting from maybe the RBA uh entertaining a hike at this meeting.
We're a little bit more cautious, but that's really set the scene for what the decision is gonna be at the RBA's February meeting.
So, James, what was driving the increase in inflation in terms of the factors here involved?
Can you kind of pinpoint a couple of the key problem areas?
One bucket of problem areas within the inflation basket is a thing that uh that local you know Australian economists refer to as administered prices.
So what is that?
Well, it's prices uh within the economy that are influenced by government decisions and regulatory dictates and the like.
So things like electricity prices, school fees, these sorts of things are sort of set either quarterly or annually.
You know, the cost of a postage stamp, they're regulated by the government.
And what we're seeing here is that we're seeing market-driven inflation, the parts of the inflation basket that are that are a bit more responsive to private decisions and supply and demand within the economy.
That's continuing to edge downward, but a lot of these uh government related or administered prices really spiking up.
And so what's happened in the third quarter and in the fourth quarter is that we've seen a bit of a a bump.
The RBA referred to it as transitory, but it's gonna test their patience.
We've seen a bump in electricity prices, we've seen a bump in property rates and uh and a couple of other things that have really pushed that administrative prices basket uh way up.
So if there is now greater risk of perhaps a move, maybe not next week, but at some point in the near future, that we could see a rate hike from the RBA, what might that do to the overall performance of the Australian economy?
Well, if the RBA does decide that they want to react to this and take out what you know could be described as an insurance hike to make sure that the inflation genie does sort of go back into the bottle because it looks like it's poking its head out just a tiny bit.
What it would mean is it would see uh a renewed I I guess suppression of the recovery on the private sector side of the economy.
But what what an RBA hike would do is it would just put a little bit of a wet blanket on that.
Another thing that's potentially uh weighing a bit or dampening the economy, and might be one of the reasons the RBA might be a little bit circumspect and be prepared to look through what it sees as this transitory inflation spike is the currency.
It's the Aussie dollar has shot up uh quite a bit.
Some of it, you know, there is this big divergence between market pricing for the RBA and market pricing for the Fed.
And and the currency is uh responding to that along with the general US dollar story uh underway.
Commodity prices, a little bit firm, gold price, Australia's the largest uh third largest, I should say, uh gold exporter.
You know, these things are all a bit supportive, uh, whether it's interest rate differential, commodity prices, or the overall uh tone within global markets when it comes to the US dollar.
Um, and all of that's going to put uh some, you know, a bit of a dampener on demand in the economy, but also a dampener on inflation, you know, imported prices.
Australia does import a lot of goods, uh a a stronger Australian dollar, is going to put some downward pressure on those inflations.
So it really is adding to the story here that this could be something that the RBA does look through.
Okay, James, we'll leave it there.
Thank you so very much.
James McIntyre, economist for Australia and New Zealand for Bloomberg Economics.
And I'm Doug Chrisner.
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 a.m.
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