it is interesting to hear the Libs, the party of economic masterminds, continually go on about how hard it will be for Labor to manage the tanking economy they have been left with.
“If you’re in a situation where, at the moment, petrol is over $2 a litre, you can’t afford to fill the car, and you can’t afford the electricity bill when it comes in. So the cost-of-living pressures, I think, are enormous.”- Peter Dutton
i hope everyone remembers that at the next election, and the one after, and every one after that, when the Libs, and NewsCorpse, push the line they they are better at managing the economy.
Its going to be interesting to see what the RBA do. I read an article that is saying that the Us Fed reserve is reconsidering increasing interest rates due to the fragility of the economy.
I think this is the right call.
The standard response is inflation high = must increase interest rates, but thats very simplistic. The economics around this strategy is that demand driven inflation needs to be controlled and you can do that via impacting disposable incomes which makes sense. The problem is that the inflation spike in this country is not caused by demand, its caused by supply. Even the ABS's commentary around the reasons for the spike in inflation explains that.
The below are the last quarters movement in CPI, both actual and seasonally adjusted.
The biggest increases are Transport. The ABS commentary on this is below, so the spike was caused due to the Russian invasion of Ukraine - so this was not demand driven and a reduction in disposable income will do NOTHING to reduce the cost of fuel.
Education - so this wasn't driven by demand, but by a change in government policy in both sections.
Food. So this one is driven by Covid supply chain disruptions, flooding and transport costs. Note the 2 biggest annualised impacts, this isn't because we are buying more, just that for various reasons the costs have risen - again not demand driven.
Housing, this 1 is demand driven, but I'd argue that is largely demand driven due to the high current values of property in Australia as people are being pushed to build rather than buy existing because of the high prices of existing properties.
I did read a comment somewhere, but can't find it now, that if you reduce the inflation groups to those that are demand driven we would be slap bang inside the RBA's inflation target of 2-3%, so what will an increase in interest rates do? Probably push the demand driven inflation below their target meaning the economy will stagnate which will not lead to wage inflation and therefore compound the current issues we are seeing.