Increases in the price level (nowadays referred to as “inflation”) are embedding themselves across much of the world. And I would like to emphasise that it’s not just a money-supply thing. It is essentially caused by the growth of purchasing power relative to the growth in the amount of goods and services available for purchase. The key element is productivity growth relative to the level of spending.
I’m not interested in dwelling on any of this, other than to point out that getting inflation back down to zero hardly fixes the problem. Here are the latest data from the ABS:
- The Consumer Price Index (CPI) rose 2.1% this quarter.
- Over the twelve months to the March 2022 quarter, the CPI rose 5.1%.
- The most significant price rises were New dwelling purchase by owner-occupiers (+5.7%) and Automotive fuel (+11.0%).
Suppose the growth rate went down to zero from 5.1%, which it won’t any time soon, if ever. Since the CPI figure is a percentage change in the index you have not recovered your lost purchasing power.
Most extraordinarily to me, the ABS only just mentions the latest index number, which is 123.9. The publication, so far as I could see, doesn’t even mention the index level a year ago which I calculate to have been 117.9.
The point: unless the Index falls back to 117.9, a zero inflation rate still leaves you 5.1% behind.
It is people on fixed incomes who will be really punished, but everyone who has not had their incomes rise by that 5.1% will be financially worse off.
So we now have all the ingredients of a wage-price spiral. This is what Labor has promised: ‘Absolutely’: Albanese backs wage growth at rate of inflation.
“I believe the minimum wage should at least keep up with the cost of living,” Albanese told a press conference in the Melbourne seat of Chisholm on Tuesday morning.
Productivity has fallen backwards since the lockdowns and the covid restrictions. Governments everywhere – see Victoria specially – have thrown away billions of dollars on useless unproductive projects. (The US has gone absolutely insane.)
Put in place a system that adjusts wages to the movement in prices and the disaster that will follow will still be with us twenty years from now.
As I’ve posted elsewhere, with the lockdowns, mandatory vaccination, and other government fuckery, there’s a strong element of “why should I bother?” with quite a significant chunk of people I know. That’s where there’s not the outright rebellious attitude, and/or retiring in place. Inflation destroying purchasing power is just icing on the cake.
“…have thrown away billions of dollars on useless unproductive projects.”
Yes – because their belief system is that we should have equality and we should care, and that is all.
But without anything else, you can justify literally anything as being “caring” and improving equality.
And if you don’t agree then “you just want to kill granny” etc etc – you are “uncaring”.
This is true in their view, even where you are saying “This will be very bad over the medium to long term and will do more damage than good”.
For example “defund the police”. They still support this and still support not prosecuting “minor” crimes. And this despite the obvious disaster of LA, SF and Detroit, as well as the great improvement that came to NY with Guliani’s “Broken Windows Policing” – you might recall how bad NY was before that policy, and how much better it became under that policy. So good, in fact, that even when the Dems won it back, they kept it going for several years before they memory-holed it and the current record high assault and murder rate is the result of undoing what actually worked.
In a panel of candidates on the ABC a little while ago, Craig Kelly was the only one who was saying that the government is not an unlimited bank that you can draw from. You have got to have revenue coming in & if you close down the revenue from coal and gas you have cut back a huge revenue stream & put a lot of people out of work. But put a 15% tax on high quality sought after iron ore, & you have a revenue steam that can begin to restore the balance sheet.
Makes sense to me. Steve?
History repeating itself once again. The equivalent of the roaring twenties have passed, our politicians have demonstrated their competence by their actions these past two years so we are entering a depression, and China has replaced Nazi Germany.
Vicki:
If we were to do so, would we gain 15% in income, or lose 15% in sales?
Despite the quality of our coal and iron ore, there comes a time when alternate lower quality feed stock can be used.
Australia is on the edge of gutting the Goose laying the golden egg.
Yes and this inflation is not being caused by demand issues but by supply issues – fractured supply chains, etc. Scarcity is causing this inflation as well as the ridiculous hounding of fossil fuels, especially petroleum, gas and coal. Inflation was already on the way up before Putin’s “Police Action” in the Ukraine. In any event the CPI is really the Corrupted Price Index and the Inflation being experienced by the Consumer is always much higher than the CPI.
“If we were to do so, would we gain 15% in income, or lose 15% in sales?”
What if the 15% applied to ore, but not steel? Bauxite, but not aluminium?
Sure, we generate more CO2 locally, but way less in transporting it due to lower weight and volume when the O2 and “slag” is removed, plus we are likely to be more environmentally friendly at refining than China or elsewhere. And we can make that case of “global emissions” when the enviros go mad.
We’d probably get more back in taxes just from increased economic “turn over” of the value add!
As well as the value-add, we are also potentially looking at industries that are “essential” for “national security” in an uncertain world, so there’s that too.
take a look at M2, it screams inflation
Kneel:
Unfortunately, that dream went tits up a couple of generations ago due to Union bloody mindedness.
The Mafia has nothing on these bastards – and like the Greens, I’d lay good money on who’s paying them for the disruption of our economy.
Just follow the money.
Bottom line is that you can’t rely on the news media to give you any actual intelligence about what is likely to happen in Australia on May 21. That’s because it is not actually interested in finding out because it has become a far left political party barracking for a change in government.
The news media has become the opposite of what it was set up to be: the public’s eyes and ears.
If you take that as a starting point, you’re much more likely to accurately predict the federal election result.
Zipster:
It screams inflation – US
As far as the Australian economy is concerned, you have a party of clueless Keynesian idiots who have no idea about what drives demand (the LNP) and bunch of Marxist socialists (the ALP) determined to destroy the natural laws of supply and demand with supercharged government spending.
Elbow’s stated desire to tie wage growth to GDP with zero dependence on productivity growth is an atom bomb that will destroy Australia’s living standards and turn us into a backward shithole like one of the former Eastern European socialist economies such as Romania.
I hope Australian voters aren’t dumb enough to vote for the Marxist alternative. In the current politically backward environment, less change is the least worst option.
Tom:
The worse case scenario is Australia waking up one morning in the gutter, covered in shit and stinking of booze.
We are at the point where the alcoholic finds the car in the driveway and checks it for damage and blood.
…still a long way to fall.
no one really cares about the economy and no one thinks any of the Lib/Nat economic fearmongering is real
we all watch constantly as state and federal governments p*ss away billions and the country doesn’t collapse .. so wtf is the problem?
seriously that’s how our young folks view the world, there is no shortage of money if you have the right reason, they see it all the time
not enough money to do it right the first time, but always plenty of money to fix it
hence, why not p*ss it away actually saving the world from fossil fuels and CO2?
anything that goes wrong in the economy is always someone’s personal fault, it is no more complex than that. It’s what they hear at school, on the ABC and all their other media sources, that it is person x or person y’s fault
to them the economy is personality driven and that’s all it is, put the right person in and all will be well
There seems to be a concerted effort to bring down the world economy, maybe to implement a great reset? But that sounds like a conspiracy theory.
Next will be the push for veganism, plant based diets and the demonising pastural agriculture when they know full well Australia is more suited for grazing.
You will eat the bugs, own nothing and be happy.
Albos housing plan to have the government own half your house sounded to me like big step toward the klaus plan to have us own nothing. A conspiracy theory being realised ? or just another government cockup after the ground was laid by all the previous cockups?
On the inflationary topic I nearly fell over when Abbot charged ahead with funding the NDIS. This thing is billions over budget with no ceiling in sight. The whole thing was flawed from the start. Who was ever going to be bad guy and so no to anyone with a limp ? Our fearless ABC have thousands of hard luck stories to pin on any government of the day. The ABC do indeed have a job for life. Which pollie from government will say no to the next hard luck case? If no one then $ must be free.
M2 with all the money printing from Central Banks has been high and increasing for years now with minimal inflation evident. No, M2 is not screaming inflation as some would shout. This inflation is being driven by supply side issues. The demand is still here but the supply is just not able to meet the demand right now.
John Sheldrick:
I have a different opinion John, and its backed by 4000 years of governments debasing their currency.
Mea Culpa. I was an early supporter of a scheme when it was first described (at least the first I heard of it) by Bill Shorten (at a Sydney Institute address) as an “insurance” scheme to help the disabled and their families to live a better life – hence the title “National Disability Insurance Scheme”.
Foolishly, I imagined it would be some sort of discreet payment by taxpayers into a fund similar to Medicare – but on a very reduced scale.
That evening, as I recall, we were regaled with (true) stories of the heartaches of families looking after severely disabled loved ones with no financial assistance and virtually no relief for holidays etc.
Of course one would support some assistance in these circumstances. In my wildest dreams I couldn’t imagine it would develop into the all consuming and exploited behemoth that it has become.
After seeing what NDIS became – an endless pit of claims for money by all manner of people – I would NEVER believe another proposition that Labor puts up.
“Foolishly, I imagined it would be some sort of discreet payment by taxpayers into a fund similar to Medicare – but on a very reduced scale. “
Instead, it was a scheme that “held down” the price of CTP motor insurance and no doubt Workers Compensation insurance etc, by essentially limiting the amount of money and for how long such insurances had to pay out.
Whereas previously if there was no-one to blame or it was not known who to blame, the insurance companies had a “round robin” system based on market share as to who was the nominal insurance company liable, and they were all FULLY liable for ALL expenses involved. Now they are up for about 6-12 months of income support and any expenses that can be racked up in that time, and then it’s all down to GovCo to pay the rest.
Since the extra they would have been up for is now gone they can reduce premiums, but GovCo puts a “levy”, “surcharge” whatever in place to help pay for it, so the actual poor consumer pays the lot anyway – except where GovCo “fixes” the surcharge so that it doesn’t cover the cost, but then sucks the cash required out of other taxes.
IOW, you still pay for it, but GovCo looks bad and insurance companies look good.
Be interesting to see which ministers now work for insurance companies or are on their boards etc.
From the UK Telegraph:
Bank of England warns of ‘apocalyptic’ global food shortage
Governor Andrew Bailey says he is ‘helpless’ in face of surging inflation…
“To forecast 10pc inflation and to say there is not a lot we can do about 80pc of it, I can tell you it is an extremely difficult place to be. We have to recognise the reality of the situation we face.”
And, as we all know, the real rate of inflation/cost of living increase is much greater.
Alain
You will eat the bugs, own nothing and be happy.
Or else!
The NDIS was a huge bomb with a spluttering fuse, left by Gillard and Co. as they slid towards the exits. Abbott should have said his government would look at it in the context of the next budget, but his fear of media backlash made him say he wouldn’t ditch it!