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

IMF demonstrates mainstream economics has ossified but remains dominant

Last week (April 11, 2023), the IMF released their half-yearly update – World Economic Outlook: A Rocky Recovery, April 2023 – which excited the headlines in the media with predictions of gloom and calls for fiscal austerity and more interest rate hikes. The only good thing about these reports every six months is the accompanying datasets, which allows for fairly quick comparative analysis across nations. Other than that, the textual narratives are pure mainstream economics Groupthink and demonstrate how if one starts from a particular and flawed set of principles, everything else that follows undermines the stated goal. This is a recurring story – we have seen this with these multilateral agencies over and over again. The point to understand is not to try to interpret these IMF reports as being knowledge-based or compiled as if they are pursuing knowledge. They are parts of the ideological weaponry that seeks to sustain and advance neoliberalism and the power relations inherent in that ideology while purporting to be expert commentary.

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The absurdity of the current monetary policy dominance exposed

We start to see the absurdity of the current reliance on monetary policy as a counter-stabilisation tool, when you read the calls from the Bank of England Monetary Policy Committee member talking about the risk of a ‘significant inflation undershoot’. In a detailed analysis of the current situation, the external MPC member noted that inflation was falling faster than expected because the supply constraints were reversing quickly. She also noted that the interest rate hikes had now reached a point where unemployment was certain to rise and lead to, in the face of the supply reversals, to deflation. And that would require faster and larger interest rate cuts. Here is an insider admitting that the Bank of England is more or less gone rogue and out-of-step with reality. Overshoot at the top of the hiking cycle, swinging to a massive undershoot at the bottom. Absurd.

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When mainstream economists arrive at ideas 50 or so years late and pretend to be contributing to knowledge

I regularly encounter mainstream economists who are confounded by the dissonance that the body of theory they have been working in introduces and then seem to think they have come up with new ideas that restores their credibility. The more extreme version of this tendency is called plagiarism in academic circles. But the less extreme version is to produce some work in which you conveniently ignore the main contributors in history but hold out implicitly that the ideas are somehow your own. As mainstream economics fumbles through this period where the fictional world they operate in and push onto students is increasingly being revealed as a fraud, several economists are trying to distance themselves from the train wreck by resorting to restating ideas that in a period past they would have criticised a ‘pop science’. This syndrome is an accompaniment to the well established ‘we knew it all along’ or ‘there is nothing new here’ defenses that are often used when new ideas make the mainstream uncomfortable. I saw this again in a recent article from the British-based Centre for Economic Policy Research (CEPR) which discusses the way modern banks work – How monetary policy affects bank lending and financial stability: A ‘credit creation theory of banking’ explanation (March 20, 2023). The problem is that heterodox economists knew this from years ago including with the seminal work in the early 1970s of Canadian economist – Basil Moore. The other problem is that the CEPR authors choose not to credit the seminal authors in the reference list, which I think is poor form.

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Inflation drops sharply in Australia but it is not the work of the RBA

Today (March 29, 2023), the Australian Bureau of Statistics (ABS) released the latest ‘monthly’ CPI data – Monthly Consumer Price Indicator – which covers the period to February 2023. On an annual basis, the monthly All Items CPI rate of increase was 6.8 per cent down from 7.4 per cent. While this signals a sharp decline in the annual rate of inflation, it should be noted that for the last month, the growth in the All Items CPI was zero, a point ignored by the media. So expect to see a fairly rapid decline. Yes, it is proving to be a transitory episode and the dynamics have not justified the rapid interest rate increases we have seen.

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The inflationary episode is being driven by profit gouging and interest rate hikes won’t help much

I have read an interesting reports in the last months that demonstrate there is a shift in thinking about inflation – away from the tired narratives that attempt to implicate excessive government spending, poorly contrived monetary policies (particularly quantitative easing) or drag in the usual suspect – excessive wage demands from workers. All of the usual narratives are very convenient frames in which those with economic power can extract more real income at the expense of the rest of us, who have little economic power. At least, we have been indocrinated to think we have no power. But, of course, if we could overthrow the whole system of capital domination if we were organised enough but that is another story again. Back to the inflation framing. While it was possible to argue that distributional struggle between workers (organised into powerful unions) and corporations (with obvious price setting power in less than competitive industries) was instrumental in propagating the original OPEC oil shock in 1973 into a drawn out inflationary episode, such a narrative falls short in 2022-23. The workers are largely disorganised and compliant now. The new thinking is starting to focus on the role of corporations – one term that is now being used is ‘greedflation’ – to describe this new era of profit gouging and its impact on the inflation trajectory. That shift in focus is warranted and welcome because it highlights the imbalances in the capitalist system and just another way in which it is prone to crises.

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Former Bank of Japan governor challenges the current monetary policy consensus

In the latest IMF Finance and Development journal (March 2023), there is an interesting article by the former governor of the Bank of Japan, Masaaki Shirakawa – It’s time to rethink the foundation and framework of monetary policy. It goes to the heart of the complete confusion that is now being demonstrated by central bank policy makers. With their ‘one trick pony’ interest rate attacks on inflation, not only have they been inconsequential in dealing with that target (the so-called price stability responsibility), but, in failing there, they have undermined the achievement of the other central bank target (financial stability) and probably worsened the chances of sustaining the third target (full employment). Sounds like a mess – and it is. We are witnessing what happens when Groupthink finally takes over an academic discipline and the policy making space. Blind, unidirectional policies, based on a failed framework, steadily undermining all the major goals – that is where we are right now. And not unsurprisingly, those who have previously preached the doctrine are now crossing the line and joining with those who predicted this mess. And, as usual, the renegade position is somehow recast as we knew it all along’ when, of course, they didn’t. When you get to that stage, we need music – and given it is Wednesday, I oblige at the end of this post.

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US inflation falling fast as Europe prepares to go back into a deliberate austerity-led crises

The transitory view of the current inflation episode is getting more support from the evidence. Yesterday’s US inflation data from the Bureau of Labor Statistics (March 14, 2023) – Consumer Price Index Summary – February 2023 – shows a further significant drop in the inflation rate as some of the key supply-side drivers abate. All the data is pointing to the fact that the US Federal Reserve’s logic is deeply flawed and not fit for purpose. Today, I also discuss the stupidity that is about to begin in Europe again, as the European Commission starts to flex its muscles after it announced to the Member States that it is back to austerity by the end of this year. And finally, some beauty from Europe in the music segment.

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The current inflationary period is not remotely like the 1970s

In the light of recent debates about whether we are back in the 1970s, where the only ostensible similarity is that inflation has accelerated over the last year or so, I dug into my data archives to remind myself of a few things. One of the problems with dealing with official data is that it gets revised from time to time and time series become discontinuous. So the labour market data for Australia tends to start in February 1978 when the Australian Bureau of Statistics moved to a monthly labour force survey. Researchers who desire to study historical data have to have been around a while and have saved their earlier data collections (such as me). But it is often impossible to match them with the newer publicly available data. You will see in what follows how that plays out. But, I was also interested to return to the past today after the ABS released their latest – Industrial Disputes, Australia – data (released March 9, 2023), which shows that disputes remain at record lows. So in what follows I show you how far removed the current situation is from what happened in the 1970s and this renders the narratives from our central bankers a pack of lies.

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RBA is engineering one of the largest cuts to real disposable income per capita in our history

Yesterday (March 7, 2023) two big things happened. The first is that I got a lovely bunch of sunflower blooms for my birthday present. Which was ace. The second, the RBA Board wheeled out the governor to announce the 10th consecutive interest rate rise even though inflation has been falling for several months. The RBA has now become preposterous and the Government should definitely terminate the tenure of the Governor in September when his term is up for renewal. In the meantime, it should clean the RBA Board out, or introduce legislation that says each member including the governor gets the real disposable loss that they are imposing on the worker deducted in percentage terms from their own salaries. A further deduction would be made (quantum to be determined) for each percentage point the unemployment rate rises. That might give them pause for thought. The music segment will definitely lift your spirits after reading through the following gloom.

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Real wages in Australia continue to plunge but the RBA still falsely claims that wage pressure justifies interest rate hikes

The RBA governor has consistently sought refuge in claims that wage pressures in Australia are building and justify the central bank rate hikes – 9 consecutive increases since May 2022. The RBA has chosen to seriously mislead the Australian public on this issue and when confronted with publicly-available data that justifies that conclusion they claim they have unpublished data that shows a wages problem that is pushing inflation. They won’t publish that data, just as they won’t tell us what their secret meetings with bank traders a few weeks were about, except we saw profit taking from the banks increase immediately after the meetings. Today (February 22, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the December-quarter, which shows that the aggregate wage index rose by 0.8 per cent over the quarter and 3.3 per cent over the 12 months. Last week, we learned that employment growth had declined for the second consecutive month, while real wages continue to contract. Says a lot about mainstream employment theory that predicts real wage cuts will increase employment. This is the seventh consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. While corporations continue to gouge profits, the RBA, like the schoolyard bully, has singled out some of the most disadvantaged workers in our society (low income earners paying of housing loans) and using them in their relentless push of mainstream ideology. This is a huge problem.

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