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

US inflation is moderating while a massive fiscal contraction is underway – recession looming

Yesterday (May 11, 2022), the US Bureau of Labor Statistics released the latest – Consumer Price Index Summary – April 2022 – which showed the monthly increase in the CPI to be 0.3 per cent, the lowest monthly increase since August 2021 and, as it happens, just about right on the average monthly growth rate from January 1947 and April 2022. The result suggests a tapering of price pressures. The Energy component fell by 2.7 per cent in April after spiking at 11 per cent in March. Further, the growth in food prices fell for the third consecutive month. All of this has nothing to do with the recent interest rises imposed on the economy by the US Federal Reserve. They were already in train and confirm the transitory nature of this period of price instability. The US Treasury Department also published its most recent fiscal statistics yesterday – Monthly Treasury Statement – for April 2022, which reports a staggering $US533,794 fiscal shift between April 2021 and April 2022 – the fiscal drag embodied in that shift is massive and calls into question the conduct of the US Federal Reserve – why did they think they needed to push the economy towards recession? Fiscal policy is already working in that direction!

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With corporate profits booming, business can afford to pay higher wages

Last week, I provided a graph in this blog post – The Left/Right distinction is as relevant as ever as corporations gouge profits out of pushing inflation (May 2, 2022) – which showed negotiated wages growth in Europe was declining and real negotiated wages had fallen sharply over the last several months. I am continually on the lookout for evidence that the current inflationary episode, no matter how alarming, is not being driven by structural forces in the labour market even though unemployment rates have fallen somewhat. A music segment follows.

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Fiscal policy shifts, not rising interest rates are required at present

Yesterday, I commented on Tuesday’s RBA interest rate rise. I wasn’t complementary. In the last two days, more data has been released since the decision, which further suggests that the RBA erred. It also suggests that part of the housing problem everyone is focused on is not due to lax monetary policy, which is the mainstream mantra, but is, rather, due to flawed tax policy. So, we have seen housing loan demand in decline and building approvals plummetting in the last month, a sign that the housing market, especially for owner-occupiers is in decline. Further, the growth in retail sales was only 1.6 per cent, and while mainstream economists are pointing to the rapid growth over the 12-month period (9.4 per cent March to March), they ignore the fact that the the March 2022 observation shows a decline on the previous month. The RBA statement yesterday did not mention housing at all, even though its decision has already pushed up mortgage rates in an already declining market. All they seem to want to do is cause massive damage to low income workers through even lower real incomes and rising unemployment and underemployment. There are fiscal options that should be pursued right now but the policy makers appear blind to them.

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The RBA has no credibility and the governor and board should resign

So, I was wrong. I thought the Reserve Bank of Australia (RBA) would hold the line on interest rates this month after telling all and sundry that they would be waiting until there was evidence of accelerating wages growth. They also lured thousands of first-home buyers into a hot property market on that promise, allowing the commercial banks to push mortgage debt onto these borrowers, sometimes at rates of six times the borrower’s income (massively overindebted in other words). The RBA also watched as household debt reached record levels and know that hundreds of thousands of borrowers are now on the margin of solvency. And all this was going on while the RBA promised the borrowers that they would not push up rates until that wages growth was evident. So far, there is no evidence of accelerating wages growth. There is lower unemployment, but that is mostly due to the fact that our external border has been closed for two or more years and labour supply growth has been static. That has now changed. I also thought the RBA was resisting the greedy push from the banks to increase interest rates and redistribute income from the struggling households with huge mortgages to the shareholders of the banks, who are well heeled, if anything. And I thought the RBA understood finally that the current inflationary surge has nothing much to do with excess spending in the economy. But I was wrong. Stupidity prevails.

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The Left/Right distinction is as relevant as ever as corporations gouge profits out of pushing inflation

Apparently, the Left/Right Paradigm is dead. This narrative keeps coming back. In the 1980s, when governments, coopted by corporate lobby groups, went on a privatisation spree, which transferred billions of dollars worth of public assets into the hands of private wealth holders, and enriched lawyers, management consultants etc into the bargain, we were told that we are all capitalists now because our pension funds bought the assets. Joke. Anyway, I keep reading and being told that there is no longer any meaningful distinction between Left and Right, with both falling into the hands of totalitarian discourse. Even so-called progressives advocate that the traditional Left should partner up with the traditional Right (and far Right) to keep ‘centrists’ out of power or to stop governments taking basic actions to protect public health. It is the ultimate victory for the neoliberals to have persuaded the Left that they have more in common with the Right than ever before. This is another example of how duped the Left has become.

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Australia – inflation rises but with no wage pressures evident there is no case for interest rate rises

The Tweets have started already demanding an interest rate rise in May at the next RBA Board meeting. Bankers, media commentators who just are conduits for the bankers – all with vested interests. Today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (April 27, 2022) – has fuelled their mania. Inflation in the March-quarter 2022 rose to 2.1 per cent (5.1 per cent for the 12 months) on the back of rising automotive fuel costs (uncompetitive cartel and deliberate government petrol tax policies), global supply chain disruptions (pandemic) and material shortages (supply chain and bushfires). As long as these influences are present, inflation will remain at elevated levels. But with wage pressures absent, it is hard to make a case that the rising inflation is now entrenched. Certainly, the long-term expectations measures would not suggest that. I cannot see why the RBA will hike rates in May. More evidence of wage pressures would be needed one suspects.

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Helping ease food insecurity and starvation requires governments to ban bankers speculating on food prices

I keep reading reports of the rising risk of food riots as food prices soar around the world and vulnerable nations and communities are faced with increased food insecurity, which is a technical term that international agencies use, that actually means risk of starvation. At the same time, governments allow hedge funds to take speculative positions on food as a traded commodity which has been shown to not only increase food prices but also divert supply into storage (long positions) while the ‘investors’ create artificial supply shortages and market instability – while people are being denied their staple food products (for example, corn speculation). There are many things that governments must do in this regard – including investing in sustainable agricultural systems to create local supply certainty, improving the quality of diets (banning high sugar and salt levels), and more. But one of the most significant things that governments could do to keep food prices down and increase food security for vulnerable nations is to cooperate on a global scale to outlaw any food speculation by hedge funds and the big investment banks. It is not only economically destructive to have large proportions of populations living with the constant threat of starvation. It is also unethical.

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IMF and World Bank at odds with each other over interest rate hikes

Today, Wednesday, we have our regular musical feature (might surprise today) as well as a brief commentary on the growing friction between the IMF and the World Bank on what governments and central banks should be doing to address the current inflationary pressures. One says hike rates (apparently thinking that will get Russia to withdraw, Covid to go away and OPEC to behave) while the other says provide better income support and wait out this transitory inflationary phase.

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Deliberately creating mass unemployment now would be the work of vandals and New Keynesians

Last week, the New York Times published the latest Paul Krugman article on inflation (which is behind its paywall). It is syndicated elsewhere and you can access it here at The Berkshire Eagle (April 13, 2022) – Paul Krugman: Inflation is about to come down – but don’t get too excited. I wondered whether the author had offered his services cheaper to the NYTs and elsewhere given his concern for inflation, and, apparently, his assertion that wages are a critical factor in sustaining it. What this article highlights is mainstream New Keynesian macroeconomics – the dominant paradigm in our teaching, research and policy circles. What it also highlights is how different the mainstream is to Modern Monetary Theory (MMT), despite characters like Krugman and his fellow New Keynesians trying to tell the world that there is nothing particularly different about MMT and the way they do economics. It also provides another chance for me to add nuance to the Job Guarantee.

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The rising incidence of Long Covid and its labour market impacts

I have written about the so-called – Great Barrington Declaration – before. The Great Barrington reference is just the name of the town where the letter was drafted and signed during a conference and bears no inference of greatness – far from it. I was also disappointed that some Left commentators fell under the spell of the anti-restriction, lockdown, vaccine lobby that the GBD represented. What transpires is that we now have an increasing body of evidence that suggests the main assumption of those behind the GBD – that herd immunity would be reached by an open slather approach to Covid (with some protections for the vulnerable) – has not been realised. Specifically, the idea of vulnerability was poorly constructed because it didn’t foresee the increasing incidence of Long Covid. The evidence now coming out by credible researchers is that we are mostly all vulnerable to long-term debilitating effects of a Covid infection and the jury is still out on how bad this will turn out to be. And, while it is clearly a medical issue, it is also causing havoc in labour markets, with increasing numbers of workers not being able to work to full potential or at all. And with the fiscal support for incomes now largely gone, that spells trouble for low-income workers. It is also a factor that will prolong the current inflationary episode.

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