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

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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Japan inflation now falling fast – monetary and fiscal policy settings have been vindicated

The latest information from Japan suggests that in December 2023, its inflation fell sharply for the second consecutive month and that one might conclude the inflation episode is coming to an end. The Bank of Japan made the assumption that this supply-side inflation was temporary and would subside fairly quickly once those constraints eased. And they were right. All the other central banks somehow convinced themselves that the inflation was demand-driven and have been needlessly pushing up interest rates. The experiment is nearly over and I think it is clear that the Japanese path was the sound one. At that point, the New Keynesian academics and officials should resign. After that, as it is Wednesday, we have some music to soothe our souls.

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Australian inflation rate falls sharply as supply pressures ease

Today’s post is a complement to my post on earlier this week – So-called ‘Team Transitory’ declared victors (January 8, 2024). Yesterday (January 10, 2024), the Australian Bureau of Statistics published the latest – Monthly Consumer Price Index Indicator – for November 2023, which showed another sharp drop in inflation. The data are the closest we have to what is actually going on at the moment and it is clear that the falling inflation that began in September 2022 is continuing at a fairly brisk pace. The annual rate is now down to 4.3 per cent from 4.9 per cent in October 2023. The main driver of inflation over the last few years has been fuel prices and automotive fuel inflation has fallen from 19.7 per cent in September 2023 to 2.3 per cent in November 2023, due to global factors quite independent of domestic monetary policy. In fact, as the time passes we get a much clear reinforcement of the transitory narrative driven by supply factors rather than demand factors. This narrative has also been given weight by a recent research paper from the ECB – What drives core inflation? The role of supply shocks (published November 13, 2023). Overall, the data is now exposing the folly of the New Keynesian macroeconomic policy approach which prioritises monetary policy as the counter stabilising tool and has considered the inflationary episode to be due to excessive government spending.

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Whether real wages have stopped declining depends on how one measures it

For the time being I will continue my Wednesday format where I cover some things that crossed my mind in the last week but which I don’t provide detailed analysis. The items can be totally orthogonal. The latest inflation data for Australia continues to affirm the transitory narrative – dropping significantly over the last month. I will analyse that tomorrow in the context of a recent ECB paper that decomposes the different factors that drove the inflationary pressures across the globe. Today, I consider the basis of a claim by the Australian Treasurer that real wages are now growing. Like many things in statistics, the numbers can say almost anything that you want them to via different ways of measurement and combination. In one sense, the Treasurer is correct. But when we use a more careful method of calculating purchasing power loss, he is incorrect. If the Treasurer was wanting to be really honest with the Australian people he would admit that rather than try to score petty political points against an opposition that has no clue at all. I also consider the role of the US in the on-going massacre of innocent people in Gaza. The US could stop the conflict immediately and the fact that they don’t demonstrates the poverty of the capitalist system in terms of advancing humanity in general. And some old folk music to finish.

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So-called ‘Team Transitory’ declared victors

On June 8, 2021, the UK Guardian published an Op Ed I wrote about inflation – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman. In that article, and in several other forums since – written, TV, radio, presentations at events – I articulated the narrative that the current inflationary pressures were transitory and would abate without the need for interest rate increases or cut backs in net government spending. In the subsequent months, I received a lot of flack from fellow economists and those out in the Twitter-verse etc who sent me quotes from the likes of Larry Summers and other prominent mainstreamers who claimed that interest rates would have to rise and government net spending cut to push up unemployment towards some conception they had of the NAIRU, where inflation would stabilise. I was also told that the emergence of the inflationary pressures signalled the death knell for Modern Monetary Theory (MMT) – the critics apparently had some idea that the pressures were caused by excessive government spending and slack monetary settings which demonstrated in their mind that this was proof that MMT policies were dangerous. Of course, they were just demonstrating their ignorance (deliberate or otherwise) of the fact that there are no MMT policies as such. MMT is an analytical framework not a policy regime. Anyway, in the last week, on mainstream economist seems to have recanted and has admitted that “Those who believed inflation would be transitory were proven right, and those who demanded the sacrifice of mass unemployment proven wrong”. For those E-mail warriors who think it is okay to send abusive messages to people you don’t know (or abusive messages in general) please do not send me apologies!

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The parallel universe in Japan continues and is delivering superior outcomes, while the rest look on clueless

It’s Wednesday and I have some commitments in Melbourne (recording a podcast with the Inside Network) and that requires some travel. So time is tight. Today, I update the latest from Japan courtesy of yesterday’s release from the Bank of Japan of its ‘Statement on Monetary Policy’. The parallel universe continues and is delivering superior outcomes, while the rest of the world’s policy makers, smitten with neoliberal nonsense, have their heads in the sand and the economies are turning to dust. I also provide some links to the video recording of the launch of the Japanese version of Reclaiming the State, which was held in Kyoto in November 2023. And I provide some links to a major article that I was featured in with one of Japan’s leading magazines. And if that isn’t enough, we have Voodoo Child.

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Central banks and climate change

Today, I discuss a recent paper from the Bank of Japan’s Research and Studies series that focused on how much attention central banks around the world give to climate change and sustainability and how they interpret those challenges within their policy frameworks. The interesting result is that when there is an explicit mandate given to the central bank to consider these issues, the policy responses are framed quite differently and are oriented towards solutions, whereas otherwise, the narratives are about how climate change will impact on inflation. In the latter case, the central banks do not see their role as being part of the solution. Rather, they threaten harsher monetary policy action to deal with inflation. I also consider the most recent US inflation data. Finally, some live music from my time in Kyoto this year.

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Inflation falling sharply in Australia while the RBA still is out there threatening rate rises

Yesterday (November 29, 2023), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for October 2023, which showed a sharp drop in inflation. This release resolves some of the uncertainty that arose when the September-quarter data came out last month, which showed a slight uptick. I analysed that data release in this blog post – Slight rise in Australian inflation rate driven by factors that do not justify further rate hikes (October 25, 2023) and concluded that the slight rise was not a sign of excess spending and would soon resolve. Today’s figures are the closest we have to what is actually going on at the moment and show that the inflation fell from an annual rate of 5.6 per cent in September 2023 to 4.9 per cent in October. 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. The RBA boss was in Hong Kong this week trying to justify the rate hikes by saying that Australian households are coping well. Her analysis is partial and ignores the massive distributional differences arising from the interest rate increases. Justifying the unjustifiable!

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Australia – stronger nominal wages growth but still below the inflation rate – no justification for deliberately increasing unemployment

Last week (November 15, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the September-quarter 2023, which shows that the aggregate wage index rose by 1.3 per cent over the quarter (up 0.5 points) and 4 per cent over the 12 months (up 0.3 points). The ABS noted this was a “record” increase in relation to the history of this time series, which began in 1997. The RBA and all the economists who want interest rates higher (mostly because the financial market institutions they represent profit from higher rates) are now claiming that the higher wages growth is evidence of a domestic inflation problem and higher unemployment is needed to force wages down. The problem is that the nominal wages growth is still well below the inflation rate (which is falling) and while productivity growth is weak, the decline in real wages is still larger than the decline in productivity growth. That combination, which I explain in detail below, signifies that corporations are failing to invest the massive profits they have been earning and are also taking advantage of the current situation to push up profit mark-ups. A system that then forces tens of thousands of workers out of employment to deal with that problem is void of any decency or rationale.

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