The RBA governor’s speech to the Australian Enterprise Economists annual dinner final week was a canny train in misdirection, specializing in the rising worth of dental visits, haircuts, sporting and different leisure actions whereas omitting key details in regards to the sources of inflation which have resulted in a dramatic fall in Australian residing requirements.
It might come as no shock by now that after 13 price rises since Might final yr, utilizing rates of interest as the only instrument for controlling inflation isn’t going to chop it.
Opposite to what Michele Bullock would have us imagine, this inflation is just not “homegrown”. It’s world and largely the results of supply-side shocks and extra post-pandemic disruptions, exacerbated by the flexibility of firms to leverage their market dominance, rising costs past what’s strictly needed. The RBA’s personal analysis has acknowledged this.
Way back to February, the RBA was acknowledging that offer shocks, not demand, accounted for not less than 50% of inflation will increase, together with the conflict in Ukraine and pandemic- and local weather change-related supply-chain disruptions. Its extra complicated in-house structural mannequin of the economic system discovered that offer shocks truly accounted for three-quarters of the latest inflation.
And within the minutes of its November assembly, the RBA all however admitted that — to cite Glenn Dyer and Bernard Keane — “enterprise vanity and greed was behind inflation”.
“Members additionally noticed that, whereas longer-term inflation expectations remained broadly anchored, there had been indicators of a slight upward drift in some monetary market measures of inflation expectations,” the RBA’s assertion reads. “If sustained, this might contribute to larger inflation. Moreover, members famous rising indicators of a mindset amongst companies that any price will increase may very well be handed onto customers.“
Whereas extra income have moderated this yr together with inflation, they’re nonetheless nicely above historic norms in each greenback phrases and as a share of GDP. A graph from a report by the Australia Institute’s Centre for Future Work reveals the shut correlation between modifications in income and annualised shopper worth index (CPI) inflation, reinforcing the view that the 2 are linked each on the way in which up, and on the way in which down.
And as economist Alan Kohler lately identified, when charges enhance, “not solely can we pay extra to the banks for our mortgages, however the Reserve Financial institution, that we personal, additionally forks out an additional billion {dollars} to them as nicely”, because of post-pandemic modifications on in a single day lending and curiosity earned on alternate settlement deposits (financial institution deposits held by the RBA), which elevated from round $25 billion earlier than the pandemic to $362.5 billion now.
Dividends surged by $75 billion between 2020 and 2023 (Centre for Future Work from ABS knowledge) — a 65% bounce — but the RBA stays silent on its impact on spending energy and inflation. It’s fairly contradictory for the RBA to wring its fingers about the specter of larger wages whereas saying little about larger income and dividends within the fingers of traders.
And with the $21 billion stage three tax cuts within the pipeline (except Treasurer Jim Chalmers involves his senses), inflation is prone to worsen. A graph within the RBA’s August CPI forecast reveals a predicted bounce in inflation within the second half of subsequent yr, which simply so occurs to coincide with when the tax cuts are attributable to kick in.
It appears curious that this additionally wasn’t worthy of point out in both the minutes of this month’s board assembly, the financial outlook part of the assertion on financial coverage, nor Bullock’s speech. (Although it did come up within the Q&A the place she acknowledged that although it was not her place to “touch upon the federal government’s stage three tax cuts, they’re already factored into our desirous about financial coverage”.)
No, higher accountable it on the rising worth of dentist visits and haircuts. By no means thoughts that common dental appointments assist stop and scale back cases of coronary heart illness and thus the pressure on the already overburdened well being system. To indicate that common check-ups and haircuts may assist enhance charges is simply irresponsible. (Although if Bullock is so involved about rising costs, she may need to take into account a phrase with Chalmers about competitors coverage earlier than its capability to manage non-public financial institution lending is revoked, and its relationship with Treasury formally severed.)
It’s additionally fairly onerous to elucidate how this inflation is homegrown when actual family disposable revenue per capita decreased by 5.1% over the previous monetary yr, leading to large falls in folks’s residing requirements, in response to the Australia Institute’s Greg Jericho.
However weirdly, the economic system nonetheless grew by 3% in 2023, and by 4.3% in 2021-22. Clearly anyone is having fun with the spoils. (Trace: it’s not households.) For that you simply’d want to take a look at a few of Australia’s main revenue centres: mining (which accounts for about half of all company income within the economic system), banking and finance, manufacturing, supermarkets, utilities, telcos, Qantas, and so forth.
Australian fossil-fuel exports elevated 9% this yr to a file $460 billion. The finance sector reported a gross working surplus of $110.5 billion within the 2022-23 monetary yr, making it the second largest supply of income within the Australian economic system after mining. Coles and Woolworths recorded a $1.6 billion revenue in August, an almost 5% enhance on 2022 and an almost 20% rise in earnings. Qantas posted a file $2.47 billion full-year underlying revenue, an 18.2% enhance in home earnings earlier than curiosity (a sign of revenue margins), and an 11.7% enhance in worldwide margins, together with freight, backed by sturdy journey demand, excessive ticket costs, the sacking of 1,700 employees, cancelled flights and unredeemed journey credit.
If anybody wants a haircut, it’s the businesses operating monopolies on items and companies — firms that may jack up costs with no pushback from authorities, regulators or the Reserve Financial institution, figuring out full nicely it’s their clients that can find yourself paying for it.
You feeling the ache, reader? In that case, we need to hear from you — particularly whereas our feedback are closed attributable to our web site improve. Ship us your ideas on this text to letters@crikey.com.au. Please embrace your full identify to be thought of for publication. We reserve the appropriate to edit for size and readability.