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This woman is an utter disgrace. What low levels the public officials in economics have fallen to in the west. It makes me ill to see how her incompetence her lies or both tarnish the reputation of economists more broadly.
I am not optimistic that we have seen the worst of inflation in Australia and I explain why in this post.
In recent days, the December 2022 quarter national statistics covering the money supply, producers’ prices and consumer prices have all been released. The data is worth reviewing for clues about what is yet to come.
Continue readingThe latest data on consumer prices in Australia was released today by the ABS. It was for the December 2022 quarter. By itself, changes in the CPI for a prior quarter do not give any information about what is likely for the current or future quarters. Still, many commentators were out in force today predicting this or that about future prices. Alan Kohler, once but no longer respected journalist, said in July 2022 that inflation had peaked. He said it would reduce in September 2022 and again in December 2022. He was wrong.
The CPI is not an indicator of inflation. It is a symptom. It is not leading, it is lagging. Remember, when the word inflation was coined, it meant an increase in the money supply. Rising prices were always the result and gradually usage changed so that inflation came to mean rising prices, in common parlance.
I’ll have more to say in the next week or so about future inflation after the statistics for the December quarter’s producers’ prices and the money supply are released.
I am one of the strongest advocates of free markets among people that I know. When I hear of the left, the cronies, the globalists and the common or garden rent seeker claiming the need for state coercive intervention owing to ‘market failure’, my response is invariably “there is no such thing as market failure, but there are outcomes that you don’t like: don’t get those two confused.”
In this case, without proclaiming the market is wrong, I can’t see how it can be right. Ordinarily, higher interest rates will not curb inflation until the real interest rate is positive. So, we’ll see if Mr Market is merely sorting cards on the table and still making up his mind.
It’s sometimes refreshing to get a laugh out of the business press, especially when much news is rather gloomy.
First up today is James Glynn (writing in the Australian) who attempts to defend the Reserve Bank of Australia. His headline says it is unfair to rage against the RBA. Long time readers of this blog will know that I have been a harsh critic of the RBA for many years, so I naturally expected this piece to start my day on a humorous note. James did not disappoint.
Continue readingWay back in June 2020 when Guy Debelle was still employed by Australia’s Reserve Bank (RBA), he made a speech in response to market jitters over the unprecedented expansion of bank credit. He said it would not lead to inflation.
In November 2021, the RBA Governor Lowe said he wasn’t expecting inflation to hit the 2% to 3% pa target range until late 2023 and so there would be no interest rate increases in 2022 but maybe there would be in 2023.
Continue readingPrice inflation data for May 2022 was released yesterday in the US. Over the full year to end May, the consumer price index increased by 8.6%. The AFR reports that this is the highest 1 year increase in 40 years. The stock markets reacted badly. The Dow Jones industrial average lost 2.7% and the NASDAQ lost 3.5% in value.
That stocks have been broadly overvalued is well accepted. Part of the reason supporting high valuations was low discount rates. A year ago, the average P/E ratio on stocks in the S&P500 was over 37. Today, it is 21.5. That reduction will have been largely driven by recent market sell offs and revaluations with higher discount rates as yields on debt markets increase. But 21 still looks expensive. I’m not sure I want to pay $21 to buy a future earnings stream of $1pa. With the high likelihood of further increases in discount rates plus risks to underlying earnings owing to economic malaise, the P/E ratios are under pressure both on the top line and bottom line.
I’d expect there is more red ink to come.
Being asleep at the wheel. Being like a rabbit caught in the car’s headlights and too frightened to move. Struck dumb. Several phrases, none of them polite, but each of them could be applied to the senior executives of Australia’s Reserve Bank, the RBA. No competent person in a position of authority at the RBA would keep in place the current monetary policy settings.
Continue readingMilton Friedman coined the phrase “inflation is always and everywhere a monetary phenomenon”. He would have been aghast, I think, if he were still around to see this chart of the US monetary base:
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Australian Actuary 