This category provides commentary on the release of inflation data by national statistical agencies and discussions about hyperinflation

Australia – inflation continues to fall and the RBA should cut interest rates

The Australian Bureau of Statistics (ABS) released the latest – Consumer Price Index, Australia – for the December-quarter 2024 today (January 29, 2025). The data showed that the inflation rate rose by just 0.2 points in the quarter and has fallen to 2.4 per cent on an annual basis (down from 2.8 per cent). The inflation rate has been within the RBA’s inflation targeting range for the last 6 months and with inflationary expectations falling, the RBA has no justification left for holding to its elevated interest rates. Using the RBA’s own logic, interest rates should now be cut.

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ECB research shows that interest rate hikes push up rents and damage low-income families

I have been arguing throughout this latest inflationary episode that the central bank rate hikes were actually introducing inflationary pressures through a number of channels, the most notable one in the Australian context being the rental component in the Consumer Price Index. The RBA has categorically denied this perversity in their policy approach, and, instead, claimed the rapidly escalating rental inflation was the result of a tight rental market, end of story. Well the rental market is tight, mostly due to the massive cutbacks in government investment in social housing over the last few decades. But the rental hikes followed the RBA rate hikes and the simple reason is that landlords when in a tight market will always pass on the costs of their investment mortgages to the tenants. They weren’t doing that before the rate hikes. A recent ECB research report – How tightening mortgage credit raises rents and increases inequality in the housing market (published January 16, 2025) – provides some robust evidence which supports my argument. That is what this blog post is about.

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Underlying inflation in Australia continues to decline

Today (November 27, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for November 2024, which showed that the annual underlying inflation rate, which excludes volatile items continues to fall – from 3.5 per cent to 3.2 per cent. The overall CPI rate (including the volatile items) rose slightly from 2.1 per cent to 2.3 per cent, but that was mostly due to the timing of government electricity rebates between October and November. In other words, the slight rise cannot be interpreted as signalling a renewed inflationary spiral is underway. All the indicators are suggesting inflation is declining and the major drivers are abating. The overall rate has been at the lower end of the RBA’s inflation targetting range (2 to 3 per cent) for four successive months now, yet the RBA continues to claim they fear a wages breakout and that unemployment needs to increase. The RBA has gone rogue and its public statements bear little relationship with reality. It is clear that the residual inflationary drivers are not the result of excess demand but rather reflect transitory factors like weather events, institutionally-driven price adjustments (such as indexation arrangements), and abuse of anti-competitive, corporate power. The general conclusion is that the global factors that drove the inflationary pressures have largely resolved and that the outlook for inflation is for continued decline. There is also evidence that the RBA has caused some of the persistence in the inflation rate through the impact of the interest rate hikes on business costs and rental accommodation.

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Australian inflation episode well and truly over – please tell the RBA to stop trying to push unemployment up further

Today (November 27, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for October 2024, which showed that the annual inflation rate was steady at 2.1 per cent and is now at the lower end of the RBA’s inflation targetting range (2 to 3 per cent). It is clear that the residual inflationary drivers are not the result of excess demand but rather reflect transitory factors like weather events and abuse of anti-competitive, corporate power (travel fares etc). The general conclusion is that the global factors that drove the inflationary pressures have largely resolved and that the outlook for inflation is for continued decline. There is also evidence that the RBA has caused some of the persistence in the inflation rate through the impact of the interest rate hikes on business costs and rental accommodation.

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RBA monetary policy decision defies logic

Well, as I write this late in the Kyoto afternoon, Donald Trump has just made a victory speech after an incredible day of election outcomes unfolding. As I wrote last week, the only moral and reasonable position for a progressive to take in this election would be to vote for Jill Stein and send a strong message to the two major candidates that they were totally unelectable. I reject the claim that that strategy would just deliver a victory for Trump. However, the Democrats can’t really deflect blame like that for their horrendous policies in relation to the Israel issue and more. So the US faced a Hobson’s choice and I hope progressive parties elsewhere heed the message of Harris’s loss. But today I want to write a bit about yesterday’s (November 5, 2024) decision by the Reserve Bank of Australia (RBA) to hold their cash rate target interest rate (the policy rate) constant. With inflation falling quickly, there is no logic to that decision. The RBA keep claiming that there is excess demand in the economy but that is an unsupportable claim given the evidence.

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Australia – inflation rate falling fast, the RBA has overcooked it again

Today (October 30, 2024), the Australian Bureau of Statistics (ABS) released the latest – Consumer Price Index, Australia – for the September-quarter 2024. The data showed that the annual inflation rate rose by just 0.2 points in the quarter and has fallen to 2.9 per cent on an annual basis. The ABS also released the – Monthly Consumer Price Index Indicator – which considers movements in September alone and the annual September-to-September inflation rate was recorded as 2.1 per cent (down from 2.7 per cent in August), which means that the inflation rate is dropping fast and will soon be well below the lower bound of the RBA’s targetting range – which means the RBA has overcooked it again! The Monthly Indicator is less accurate though than the quarterly figure in that it contains less overall price information (less goods and services are surveyed). The major expectations series all show expected inflation to be in decline and well within the RBA’s target zone. Using the RBA’s own logic, interest rates should now be cut.

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Shipping disruptions unlikely to precipitate another inflation surge

It’s Wednesday and while I usually have a few topics to discuss, today I am concentrating on the recent disruptions to shipping channels and the likely impact on inflation. I was also hoping to post a video of the recent launch of my new book with Warren Mosler in Melbourne on September 12, 2024 but the editing is not quite finished. If we analyse the shipping data it is quite clear that global shipping channels are being seriously disrupted by a number of factors. Most particularly, the Suez Canal is becoming unusable while the Panama Canal is struggling with water levels following a devastating drought. The impact of the former has been for major shipping companies to divert their movements around the Cape of Good Hope, adding time and costs to the freight deliveries. If we reflect on the implications, the most reasonable conclusion at this stage is that these shifts in shipping patterns are unlikely to precipitate another surge in inflation. There might be some temporary cost and price shocks but I cannot see them persisting. And, there is nothing here that is relevant to central bankers.

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Australian Treasurer refuses to use his legislative power to rein in the rogue RBA

It has been quite the week in central banking terms in Australia. We had the Federal Greens economic justice spokesperson demanding that the Federal Treasurer use the powers he has under the Reserve Bank of Australia Act 1959 and order the RBA to lower interest rates. Then we had the Treasurer playing the ‘RBA is independent’ game, which depoliticises a major arm of economic policy, a (neoliberal) rort that ordinary people are finally starting to see through and rebel against in voting intention. Then an ABC journalist finally told his readers that the RBA was using a flawed theory (NAIRU) and was screwing mortgage holders relentlessly for no reason. Then the RBA Monetary Policy Board met yesterday and held the interest rate constant despite the US Federal Reserve lowering the US funds rate by a rather large 50 basis points last week and continued their pathetic narrative that inflation was too high and ‘sticky’. And then, today (September 25, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for August 2024, which exposed the fallacy of the RBA’s narrative. The annual inflation rate is now at 2.7 per cent having dropped from 3.5 per cent in July and the current drivers have nothing to do with ‘excess demand (spending)’, which means the claims by the RBA that they have to keep a lid on spending – which really means they want unemployment to increase further – are plainly unjustifiable. As I said, quite a week in central banking. My position has been clear – the global factors that drove the inflationary pressures are resolving and that the outlook for inflation is for continued decline. This was never an ‘excess demand’ episode and there was no case for higher interest rates, even back in May 2022, when the RBA started hiking.

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The ‘MMT is dead’ crowd are silent now the yen is appreciating

It’s Wednesday and I am mostly thinking about Japan today. In just over a week’s time, I will once again head to Japan to work at Kyoto University. I will be there for several weeks and will provide regular reports as I have in previous years of what is happening there. The LDP leadership struggle is certainly proving to be interesting and there is now a view emerging that the hoped for break out from the deflationary period has not happened and further fiscal expansion is necessary. This is at a time when the yen is appreciating and the authorities are worried it is making the external sector noncompetitive. That is, light years away from the predictions made by the ‘MMT is dead’ crowd when they saw the depreciating yen during 2022 and beyond. It just goes to show that trying to interpret the world from the ‘sound finance’ lens will generally lead to erroneous conclusions.

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British House of Lords Debt Report starts with false premises and then just repeats conventional fictions

On Tuesday (September 10, 2024), the UK House of Lords Economic Affairs Committee released their first report for the Session 2024-25 (HL Paper 5) – National debt: it’s time for tough decisions – which was the result of their decision to hold an inquiry – How sustainable is our national debt? – into whether “UK’s national debt is on a sustainable path” and whether “the Government’s fiscal rule regarding the national debt is meaningful”. They didn’t need a large-scale investigation to come up with answers to those questions: Yes and Not meaningful- are my answers based on the reality of the currency status of the British government.

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