The delusional RBA has everyone convinced that they are the reason inflation is falling

It’s Wednesday and as usual I present commentary on a range of topics that are of interest to me. They don’t have to be connected in any particular way. Today, RBA interest rate decisions, COVID and some great music. Yesterday, the Reserve Bank of Australia (RBA) held their target interest rate constant. In their media release (June 18, 2024) – Statement by the Reserve Bank Board: Monetary Policy Decision – the RBA claimed that “higher interest rates have been working to bring aggregate demand and supply closer towards balance”. The journalists duly digested the propaganda from the RBA and throughout yesterday repeated the claim relentlessly – that the RBA had done a great job in ‘getting inflation down’ and now was attempting to ‘navigate’ a sort of knife edge between effective inflation control and the increasing probability of recession. It was an amazing demonstration of being fed the narrative from the authorities, and then, pumping it out as broadly as possible through the mainstream media channels to the rest of us idiots who were meant to just take it as gospel. Not one journalist that I heard on radio, TV or read questioned that narrative. The emphasis was on the ‘poor RBA governor’ who had a difficult job protecting us from inflation and recession. Well, my position is that the decline in inflation since the December-quarter 2022 has had little to do with the 11 interest-rate hikes since May 2022 and more to do with factors changing that are not sensitive to domestic interest rate variations. Further, the impact of two consecutive years of fiscal austerity (the Federal government has recorded two fiscal years of surpluses now) has mostly been the reason that GDP growth is approaching zero and will turn negative in the coming quarters at the current policy settings.

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Australia’s inflation rate continues to fall yet some bank economists think further interest rate rises are possible

Yesterday (April 24, 2024), the Australian Bureau of Statistics (ABS) released the latest – Consumer Price Index, Australia – for the March-quarter 2024. The data showed that the inflation rate continues to fall – down to 3.6 per cent from 4 per cent in line with global supply trends. There is nothing in this quarterly release that would justify further interest rate rises. Despite that reality the national broadcaster has wheeled out a few bank and/or financial market economists who claim we cannot rule out further interest rate rises. That is their wish because it improves the bottom line of their companies. But it is arrant nonsense based on the reality and it is a pity that the national broadcaster cannot present a more balanced view on this.

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The IMF has outlived its usefulness – by about 50 years

The IMF and the World Bank are in Washington this week for their 6 monthly meetings and the IMF are already bullying policy makers around the world with their rhetoric that continues the scaremongering about inflation. The IMF boss has told central bankers to resist pressure to drop interest rates, even though it is clear the world economy (minus the US) is slowing quickly. It is a case of the IMF repeating the errors it has made in the past. There is a plethora of evidence that shows the IMF forecasts are systematically biased – which means they keep making the same mistakes – and those mistakes are traced to the underlying deficiencies of the mainstream macroeconomic framework that they deploy. For example, when estimating the impacts of fiscal austerity they always underestimate the negative output and unemployment effects, because that framework typically claims fiscal policy is ineffective and its impacts will be offset by shifts in private sector behaviour (so-called Ricardian effects). That structure reflects the ‘free market’ ideology of the organisation and the mainstream economic theory. The problem is if the theory fails to explain reality then it is likely that the predictions will be systematically biased and poor. The problem is that the forecasts lead to policy shifts (for example, the austerity imposed on Greece) which damage human well-being when they turn out to be wrong.

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Inflation excluding volatile items is now falling back to around 2 per cent in Australia – despite the efforts of the RBA

Today (March 27, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for February 2024, which showed that the annual inflation rate steadied at 3.4 per cent. Today’s figures are the closest we have to what is actually going on at the moment and show many of the factors that drove the sudden burst in inflation are now abating and the current factors that are significant are more to do with abuse of market power than overspending or excessive wage demands. Significantly, if we look at the All Groups CPI excluding volatile items (which are items that fluctuate up and down regularly due to natural disasters, sudden events like OPEC price hikes, etc) then the monthly inflation rate was zero and the annualised rate over the last six months is 2.5 per cent – which is in the middle of the RBA’s inflation targetting range. If we take the annualised rate of that series, over the last three months, then the inflation rate is 2 per cent, at the bottom of the RBA’s range. The general conclusion is that the global factors that were responsible for the inflation pressures are abating fairly quickly as the world adapts to Covid, Ukraine and OPEC profit gouging. This inflation was never about overspending.

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Bank of Japan’s rate rise is not a sign of a radical policy shift

Yesterday, the Bank of Japan increased its policy target rate for the first time in 17 odd years and it set the noise level among the commentariat off the charts – ‘finally, they have bowed to the pressure from the financial markets’, ‘major tightening’, ‘scraps radical policy’, etc – all the hysteria. The reality is quite different as they moved the target from -0.1 per cent to 0 per cent – no major shift, just a modest variation after better than expected – Shuntō outcomes for workers, which may finally signal that the deflationary mindset among workers and firms is coming to an end. However, to think that the Bank of Japan has just radically changed its tune is naive and not consistent with the facts. After analysing the Japanese situation we have some nice music today – given it is Wednesday.

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Latest US inflation data is no cause for alarm – the trend is down

It’s Wednesday and I have looked at the US CPI release overnight that has set alarm bells off in the ‘financial markets’ and among mainstream economists. My assessment is that there is nothing much to see – annual inflation less volatile items is still falling and the lagged impact of shelter (housing) is still evident even though that component is also in decline. I also examine an argument that the trend towards increasing self-reliance among nations is likely to precipitate renewed global conflict. My own view of this trend is that it must accelerate to allow us to shift to a degrowth trajectory. And I finish with some fine concertina music.

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Australian inflation rate remains on a downward trajectory

Today (February 28, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for January 2024, which showed that the inflation rate steadied at 3.4 per cent but remains in a downward trajectory in Australia as it is elsewhere in the world. Today’s figures are the closest we have to what is actually going on at the moment and show that the inflation was 3.4 per cent in January 2024 but many of the key driving components are now firmly declining. The trajectory is firmly downwards. As I show below, the only components of the CPI that are rising are either due to external factors that the RBA has no control over and are ephemeral, or, are being caused by the RBA rate rises themselves. All the rate hikes have done is engineer a massive shift in income distribution towards the rich away from the poor. The slowdown the Australian economy is experiencing is largely due to fiscal drag not higher interest rates.

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US inflation rate is declining – no case for further rate rises

It’s Wednesday and I have comments on a few items today. I haven’t been able to write much today because the power has been down after the dramatic storms yesterday in Victoria damaged the network and caused absolute chaos (see below). Power is mostly back on now (which is why this post is later than usual). The US CPI data released yesterday showed that inflation continues to decline and the so-called ‘surprise’ that seems to have shocked the ‘markets’ are mostly down to the eccentric way the US Bureau of Labor Statistics calculates housing costs. The data provides no justification for further rate hikes in the US or anywhere else for that matter. I also report on an interesting survey from Japan regarding local attitudes to foreigners. I don’t think it reflects Japanese insularity although many will conclude otherwise. Then some Wayne Shorter.

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New research report finds massive price gouging across all sectors of Australian economy

Over the last few years, the RBA has been emphatically denying that price gouging from corporations with significant market power has been driving the movements in the inflation rate. They knew that if they conceded that reality then there would be no justification for the 11 interest rate hikes they have introduced since May 2022. It was obvious that firms were pushing up profit margins – that is, increasing prices beyond the increases in costs. Still, the RBA denied it and claimed that firms were facing wage pressures and excessive demand, which justified the interest rate rises, despite the evidence not being supportive. On Tuesday (February 6, 2024), a new study has found that there is massive price gouging across all sectors of Australian economy by corporations, many of them operating in sectors that were heavily privatised (for example, airlines, electricity, child care, banking). There is systematic profit margin push going on which has been a significant contributor to the persistent inflationary pressures. These findings strip the RBA of any justification for their unconscionable rate rises which have transferred billions to the financial elites at the expense of low income mortgage holders.

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Australia – inflation falling rapidly

Today (January 31, 2024), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the December-quarter 2023. The data showed that the inflation rate continues to fall sharply – down to 4.1 per cent from 5.2 per cent in line with global supply trends. There is nothing in this quarterly release that would justify further interest rate rises. Yesterday, the ABS published the latest – Retail Trade – data for December 2023, which showed a marked slowdown in consumer spending in December 2023 after many consumers brought forward spending in November 2023 to take advantage of the discount sales. So it is likely that overall spending is subdued and I expect the inflation rate to continue to decline in the next three months.

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