Cameron Bagrie: independent economist responds to Treasury's 'worst case' economic forecast

Now, if Nicola Willis is worst case scenario of 3.7% inflation as a result of the Iran

war didn't sound that bad to you, it didn't sound that bad to economist Cameron Bagry

either who isn't so sure that that is necessarily the worst case scenario.

And he's with us, I can.

Right, what do you think is the worst case scenario?

I look, I wouldn't put a worst case scenario on it because who really has any

idea how high oil prices are going to go or how long this pension, you know,

the situation in regard to humus is going to last.

You know, all I put out there is a 3.7 seems like a baseline number to me.

You know, I note that A and Zs come out and they now expect inflation to go to 3.6.

B and Zs 3.8.

You know, there'll be a risk profile around that both up and down.

I hire them lower.

So the 3.7 seemed like a mid-range number as opposed to the worst possible outcome to me.

I see what you say.

You also say in your piece, if you wanted worst case scenario numbers,

start by doubling 3.7, but that is just throwing an arbitrary number around.

But are you suggesting we should be looking more at 7 points, something?

No, I wouldn't say looking at it because these are these are just scenarios and

scenarios have got different probabilities.

So the worst possible outcome might have the probability of I don't know anything

up to five percent.

You know, so bad event, but with a low probability, but it will still have a positive

probability, yeah, and it's a possibility as opposed to a probability.

Yeah, so look, I just look at the COVID shock, you know, what a COVID shock deliver.

Yeah, a number up around 7 percent.

Yeah, higher numbers and other sort of jurisdictions around the globe.

So you can probably take some sort of guidance from that.

You can do really recognize and regard the oil prices get up to 150 bucks a barrel.

And they stay there for an annual engagement sort of period.

But I think the bigger thing here is

are we going to start to see some second round effects because if you look at the primary

channel, yeah, fuel prices go up and people tend to focus on petrol.

And people's got a 3.5% weight in the CPI.

So you get 30% jump and petrol, which is what we're sort of, yeah, it looks

what we're going to see.

You get one percentage points to inflation.

Yeah.

So that probably gives you the 3.7 number that yeah, trees put on the table.

But of course, we can see more diesel than petrol and diesel flows into what's

will produce a price inflation.

That's what produces face and the producers cost their up.

I transport costs.

We're going to pass those prices increases on your past those prices increases on.

I get in goods of the suit markets.

Then you start to see supermarket inflation start to rise.

Yeah.

So it's those secondary channels that I'm not quite sure that trees be taken

sufficiently into account.

There's a lot of pressure out there on businesses and regard to margins and margins drive

profitability and yeah, margins have come under pressure.

I just got a sneak in suspicion if they've got a reason to push up prices under

the guise of what's going on in her moves around the globe.

Femmes are going to use that excuse and try to jam through some price rises.

We've seen it before.

Yeah.

What do you think that this?

Okay.

So if you're thinking 3.7 is maybe the baseline, then what are you anticipating

this does to our GDP?

Well, the good news is that the economy is actually we're out of recession.

We've got reason one moment momentum and that's important because if you're on

your knees, you can get knocked around and off a lot more than if you've got

momentum.

Yeah, yeah, you've gotten and we are on a steady path, you're back to what we

call sort of an amality, but we're still coming out of a bourbon economic

sort of hole.

But once again, yeah, this comes down to the intensity of the shock, how long,

how prolonged it is going to sort of be.

Yeah, you can put help to scale to sort of your scenarios out there.

What's, say we start to see rest in it, you start to see resting, then you start

to see COVID-strike types of economic consequences out there.

Now we hope you don't go down that route, but the longer this destruction takes place,

the further we risk running down our wall supplies.

And what do we have at the moment, about 49 days on land plus on water?

Yeah.

We'll see where things stand in about another week.

All right, Cam, it's always good to talk to you.

I appreciate it.

I made this camera battery independent economist.