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

Covid-specific inflationary pressures are dominant and are transitory

There has been some very interesting data and other research published recently that allow us to more fully understand what is driving the current inflationary pressures. There is a massive lobby now pushing the idea that the central bank bond-buying programs and the rising fiscal support during the pandemic are responsible. This sort of narrative is coming from the mainstream economists who are suffering attention-deficit disorders (even though they get the top platforms all the time to preach their views), and, who in the last few weeks have become increasingly vehement and personal in their attacks on Modern Monetary Theory (MMT). Their actions are a sign that the cognitive dissonance is getting to them and they realise they have been left behind. But the evidence that is continually coming out across a number of indicators continues to reaffirm my view that the current inflationary spikes are being driven by the total abnormal circumstances the world has found itself in as a result of the pandemic. The usual institutional and structural drivers of an inflation – which were certainly prominent in the 1970s – seem to be absent at present. I will present further research next week on this topic as I build further evidence.

Read more

Bank of England Governor just didn’t go far enough

The Bank of England governor Andrew Bailey caused a stir last week when he said that British workers should not get wage increases in the coming period. This was a day after the Bank of England raised interest rates, presumably because they have some theory that that will cure Covid and get trucks moving again. There was general outrage expressed by a range of voices, who often are not on the same page – unions, corporate interests, the ‘high wage’ aspiring Tory government (perhaps). The outrage was, unfortunately, personalised with critics pointing out that “Bailey was paid £575,538, including pension, last year” (Source) and hasn’t offered to give any of that fat cat salary back. But as in most things, getting personal usually misses the point. Beyond the rage, in a sense, he was correct to highlight that if the current supply-induced price pressures trigger a wider distributional struggle then accelerating inflation will result and the policy implications of such an event as that will be very damaging to workers in the UK. But, the problem was that he didn’t go far enough. This won’t be a popular view but it comes from studying inflationary mechanisms all my career, which means I think I understand how supply constraints move into a generalised wage-price spiral, which then causes worker more damage than some wage restraint. And, remember, we are talking about Capitalism here – not some profit-sharing, collectively-owned nirvana. The Bank of England Governor was clearly thinking that the conditions for a 1970s wage-price spiral are approaching for the UK, which means that wage restraint would be sensible if the goal was to insulate the current supply shocks arising from the pandemic and aberrant behaviour by OPEC etc and render them transitory. I don’t think the conditions are present yet and he should have generalised the concern to focus on other more obvious triggers that do exist at present.

Read more

RBA rejects theory that interest rate rises cure Covid and make trucks go faster

It’s Wednesday and a ‘blog lite’ day but there was an important speech delivered by the Governor of Australia’s central bank today that reveals the reasons that the RBA is once again refusing to be bullied into increasing interest rates rises by the ‘markets’. It is almost comical to observe the ludicrous self-importance that the ‘markets’ are exhibiting at the moment. Every day there is a new article or segment on the finance reports about how the ‘markets’ are going to win the battle against the RBA, who will buckle soon on interest rates. Well, yesterday the RBA didn’t buckle and they made fools of the ‘markets’. Remember the ‘markets’ is just a collection of economists who work for financial institutions that make more profits when interest rates are higher. It is no wonder they are always demanding higher rates. That is what vested interests are about. And for the media to just continually give them a platform, especially the national broadcaster, is a disgrace. Anyway, the ‘markets’ lost out yesterday and the RBA clearly doesn’t think that interest rate rises cure Covid and make trucks go faster.

Read more

New UK cost of living dataset improves on standard CPI release – somewhat

The UK Office of National Statistics released a new dataset last week (January 28, 2022) – CPI-consistent inflation rate estimates for UK household groups (plutocratic weighting) – which resumes its analysis of the differential impacts of price rises on different cohorts in the population. Other national statistical agencies have also been doing for some years now. For example, the Australian Bureau of Statistics regularly publishes its – Selected Living Cost Indexes, Australia (last edition September-quarter 2021, published November 3, 2021). This type of data fills the breach left by the standard CPI releases

Read more

Australia – inflation mania is alive and well but running on fumes!

There is an increasing frequency of articles appearing in the financial press in Australia about how inflation is back and that the RBA had better start hiking rates and stop buying government debt. Warnings to home buyers that mortgage rates are about to go through the roof. And all that sort of stuff. Moronic. If you examine today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (January 25, 2022) – which relates to to the December-quarter 2021, you might be wondering what the fuss is all about. Inflation rose slightly in the December-quarter 2021 and was driven by rising automative fuel costs (uncompetitive cartel and deliberate government petrol tax policies), global supply chain disruptions (pandemic) and material shortages (supply chain and bushfires). Not much more to see than that really. I note the same journalists are out there beating the inflation mania drum. Don’t they get sick of being wrong all the time. Their wages should be linked to their predictive capacity – they would starve!

Read more

Euro area inflation is not accelerating out of control

Last week (January 20, 2022), Eurostat released the latest inflation data – Annual inflation up to 5.0% in the euro area – which followed the release from the US Bureau of Labor Statistics data (January 12, 2022) – Consumer Price Index Summary , the latter, which shocked people, given that it recorded an annual inflation rate of 7 per cent before seasonal adjustment. The Euro area inflation rate over the same period was published as 5 per cent. It is obviously hard to see clearly through the data trends given the amount of pandemic noise that is dominating. But I stand by my 2020 assessment (updated several times since) that we are still seeing ephemeral price pressures as a result of the massive disruption the pandemic has caused to production, distribution and transport systems. In a sense, I am surprised the inflationary pressures have not be greater.

Read more

More evidence that the current inflation is ephemeral

When I am asked whether I still consider the recent bout of inflation to be transitory, I say that transitory means as long as the pandemic disrupts the balance between supply and demand. Note: demand. I have been getting lots of E-mails telling me that Modern Monetary Theory (MMT) is a fraud because of the inflation spike and our denial of the demand (spending) involvement. Apparently, the data shows that large fiscal deficits and central bank bond-buying programs are always inflationary. Good try. I last provided data and analysis of this issue in this blog post – Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result (December 13, 2021) – where I made it clear that the spikes are a unique coincidence between abnormal, pandemic-related demand and supply patterns. That couldn’t be clearer. And when that sort of imbalance occurs, with the addition of cartel-type price gouging (which has nothing to do with fiscal or monetary policy settings) then MMT predicts a nation will encounter inflationary pressures. The idea that the economy is defined by periods below full capacity when there will be no inflation and beyond full capacity when there will be inflation is not part of the MMT body of knowledge. It is more complicated than that dichotomy which we address in our textbook – Macroeconomics. Supporting this view, is a recent ECB research paper, which uses fairly advanced econometric techniques to decompose one measure of inflationary expectations in a component that reflects short-term risk and another that reflects longer term inflationary expectations. They find the former is driving the current inflation trajectory while the latter is largely stable. That means, in English, that the current inflation is likely to be of an ephemeral nature driven by how long the pandemic interrupts supply chains.

Read more

Turkey tells us nothing about MMT – but MMT tells us a lot about why Turkey is in trouble

I have noticed a lot of Internet traffic about Modern Monetary Theory (MMT) and the situation in Turkey at present. Apparently, as the narrative goes, MMT is finally being revealed as a fraud because Turkey’s economy is going backwards and its currency is depreciating rapidly. The logic, it seems, is that if a nation enters rough economic waters and the financial markets sell its currency (although remember someone has to be buying it simultaneously) then that proves MMT is false. An extraordinarily naive viewpoint if you think about it. This viewpoint has somehow missed the train on understanding what MMT actually is and seems to think that MMT economists have seen Turkey as a policy model. In this blog post, I consider some aspects of this naivety. It won’t silence the critiques, but it, hopefully will educate those who are interested in the topic and are learning about MMT.

Read more

Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result

Regular readers will know that I think the current inflationary phenomenon is transitory. They will also know that I see the continual claims by financial market economists that central banks have to increase interest rates now to avoid an accelerating inflationary episode as having little economic content and lots of self interest content. If rates go up, they win their bets and the more they can bully authorities to do their bidding the more certain their bets become profitable. I am glad that central banks around the world are resisting that game of bluff. In previous periods, they have not resisted and have handed the financial speculators (the top-end-of-town) massive and unjustified profits and forced millions of workers to endure joblessness. It is also interesting that the mainstream press is starting to work that out too. Some progress.

Read more

The current inflation trajectory still looks to be transitory

On November 11, 2021, the Bank of International Settlements (BIS) related their BIS Bulletin No. 48 – Bottlenecks: causes and macroeconomic implications – which presents evidence that should help people who are becoming het up about the inflation numbers lately to calm down a bit. On June 8, 2021, the UK Guardian published an Op Ed I had written – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman – which I stand by. I have been criticised for dismissing the inflation threat and I regularly get E-mails announcing the Modern Monetary Theory (MMT) is ‘over’ and has been proven wrong by the rising inflation rates around the world. Those interventions actually break up my day with ‘humour’ – I am continually amazed how little people know who have such strong opinions. I always adopted the view that you work something out before forming an opinion. In this ‘social media’ era, the working out bit seems to have lapsed and people just jump in. That used to be called blind prejudice. Anyway, the BIS research is interesting and supports my on-going view that the current inflation trajectory still looks to be transitory and the forces that led to the supply bottlenecks will also likely unwind in the other direction to depress price rises.

Read more
Back To Top