The Australian Bureau of Statistics released the latest version of – Private New Capital Expenditure and Expected Expenditure, Australia – today (May 26, 2022), which is part of several releases leading up to the publication of the March-quarter National Accounts next Wednesday. Today’s business investment data shouws that private new capital expenditure in Australia fell by 0.3 per cent in the March quarter but was up by 4.5 per cent on the year. With the uncertainty continuing about the extent and duration of the current supply-side disruptions, the decline in business investment was, in fact, modest. And the expected investment plans signal that there is still no sense of crisis among those responsible for capital expenditure. One of the challenges facing the new Federal government is to maintain optimism in the economy in order to avoid the current-quarter decline in business investment becoming consolidated. If the new Treasurer keeps harping on about the $A1 trillion debt and the need to cut the fiscal deficit, they will fail that challenge and business will get spooked and we will head towards recession with on-going inflationary pressures.
It’s Wednesday and I just finished a ‘Conversation’ with the Economics Society of Australia, where I talked about Modern Monetary Theory (MMT) and its application to current policy issues. Some of the questions were excellent and challenging to answer, which is the best way. You can view an edited version of the discussion below and then enjoy The Meters.
On May 4, 2022, the RBA increased interest rates claiming they had evidence of accelerating wages growth. For the last few years, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. Well, today, we found out the RBA was poorly informed because the latest wages data shows that wages growth has been flat in each of the last three quarters. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. Today (May 18, 2022), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2021. The WPI data shows that nominal wages growth was 2.4 over the 12 months. Private sector wages growth has remained at low levels. The last time wages growth was higher was in the December-quarter 2014. While the conservatives are railing about inflation now and looking to target workers’ wages (further cuts), the evidence is that the wages side is not driving any inflationary pressures – the opposite is the case. 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. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.
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!
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.
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.
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.
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.
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.
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.