Australia – inflation still falling while the RBA governor keeps inventing ruses to keep hiking rates
It's Wednesday and there is a lot going on in the data release sense -…
It’s Wednesday and I have been tied up most of the day on things that keep me from writing. But I offer some comments on today’s inflation data from the Australian Bureau of Statistics which will help you understand that we have to be very careful in analysing that data because quite often CPI increases are driven by government policy which allows administered prices to rise. Short conclusion: a rising inflation rate does not signal a growing economy necessarily. I also provide details about my current lecture series at the University of Helsinko, which the broader public are invited to participate in. And then some fusion.
The Australian Bureau of Statistics released the latest – Consumer Price Index – data today (January 27, 2020) for the December-quarter 2020.
I won’t provide a detailed analysis of it here but the release highlights something that many people seem to ignore.
I did several press interviews today about the release and the journalists were all interested in whether the 0.9 per cent rise for the quarter signalled that the economy was running out of fiscal space.
I noted the following:
1. Alcohol and tobacco was the major contributor to the increase in the CPI. Why? It reflected:
… the annual excise tax increase of 12.5% and the bi-annual excise tax increase … both applied on 1 September 2020.
2. The Health group rose 1.3 per cent. Why? “due to increases in private health insurance premiums on 1 October 2020″ – these are administrative increases allowed by the government to give rents to the private medical providers.
3. Education group rose 1.2 per cent. Why? Because the government terminated the ” free before and after school care from the ‘Early Childhood Education and Care Relief Package’.”
4. The Transport group rose 0.9 per cent. Why? In part, because of “the cessation of discounts offered on Sydney off-peak fares” as part of the pandemic relief.
5. The Furnishings, household equipment and services group rose 3.4 per cent. Why? Mostly because “out-of-pocket expenses for child care fees returned to pre-COVID levels” after the government had provided free child care as part of its rescue package for that sector.
6. Within the Housing group, which fell by 0.6 per cent, Electricity fell by 7.5 per cent. Why? Because electricity prices fell significantly as a result of State government initiatives to provide a free power (a credit segment) as part of the relief.
The point is that all these shifts are administrative type influences. Decisions by government to extend relief or withdraw fiscal relief and in the case of health care to guarantee rents to the snivelling private health care provides.
They are nothing to do with spending intensity and relative resource availability.
In many cases, CPI movements are driven by these types of influences and bear no relation to the state of the fiscal situation in the nation.
When we observe rising inflation like this, we have to be careful not to fall into the mainstream trap that it is because the fiscal stimulus was too large.
In fact, I told the journalists that there is significant scope for fiscal expansion at present and the government would be acting responsibly to do that.
How do I come up with that?
The broad labour underutilisation rate is currently 15.1 per cent (meaning that that percentage of available workers is being wasted in one way or another – unemployment or underemployment) and the participation rate is below recent peaks (meaning that there has been a rise in hidden unemployment as workers have given up job search due to the lack of employment opportunities).
When we see that level of mass resource wastage then we know at least one other thing – the fiscal deficit is too low.
Last night, I presented this lecture, which is an annual event for me when I visit Helsinki each year as part of my professorial duties at the University of Helsinki.
The lecture was streamed on YouTube this year given the travel restrictions have prevented me from going to Finland.
This lecture opens my annual 6 lecture series, which are part of the post-graduate political economy program.
While this lecture aims to be accessible to the general public, the other lectures are more academic in nature and have technical aspects that may or may not appeal to a general audience.
The University of Helsinki have indicated they are happy for the general public to attend the additional five lectures should they wish.
Unlike, the public lecture last night, the remaining lectures will be via Zoom.
The time table is:
But be clear these are formal teaching lectures not aimed at the general public. MMTed will be launching lectures soon that covers similar material in a less academic way.
The Zoom link will be at: https://helsinki.zoom.us/j/61941922246?pwd=YXpPM0xYQWFFYUNsMjhtNGZMOUg5dz09
Meeting ID: 619 4192 2246
The lectures start 18:15 Sydney/Melbourne time except for Friday, January 29, when it will start at 18:00.
This is 09:15 Helsinki time.
This is what I have been listening to while working this morning.
I quite like – Marcus Miller – when he plays solo bass lines.
I also, obviously, liked – Miles Davis (his playing not his non-music behaviour) – and I have always been partial to – Kenny Garrett on sax and – Omar Hakim – on drums.
So it was also obvious that I would like this album – Amandla (Warner Brothers )- when it came out in 1989. It was one of the last albums Miles Davis released and it was produced by Marcus Miller who played bass, guitar and keyboards (therefore talented).
He wrote this song – Amandla – the title track from the album. The name Amandla means power in the Zulu and Zhosa languages.
This was the third album that Miles Davis and Marcus Miller recorded together from 1986, then 1987 and then this one in 1989. All great albums I should say.
It is fusion of the good variety although it was somewhat canned at the time by critics who claimed Miles Davis had had his day. The critics had hated his 1969 release Bitches Brew, which marked the start of his fusion days (to make a living given the decline of pure jazz opportunities) but hated this album even more because it when he teamed up with Marcus Miller, out came the programmed synths, samplers and drum loop/machines, which sent the ‘purists’ into conniptions.
The sound was great though so the purists missed the point.
He died two years later. This was one of his last albums and not his best but still better than most.
And if you listen hard enough you will sense the Zouk influence from the Caribbean. I might just drag some Zouk out for next week’s track. That should be entertaining.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.
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