I’m no economist but neither am I a fool. When somebody tells me that inflation has taken off in Australia and that the cause is largely due to an escalation in the prices of goods and services driven by wage and salary increases and the costs of production I start to take interest.
For a start it can’t be spiralling wages as they have been stuck in the doldrums for years while corporate profits have surged and executive bonuses have ballooned. So we need to look elsewhere.
The Reserve Bank of Australia says that they have to dampen down spending because you and I (well not so much me, more you) have been borrowing too much money and spending it on buying up residential land and houses like the much maligned drunken sailor – you have been doing this because money was so cheap that you would be a fool not to do so ; also you were cheered on by successive governments who gave you generous negative gearing and capital gains tax concessions to encourage you in your wanton spending.
Well, on Tuesday the Reserve Bank will take a big stick to us (well, more you than me) and probably increase interest rates by at least half of one percent if not seventy five basis points (that’s the clever way of saying .75%). This will quickly be passed on by the banks and will, they hope, quell your lust for borrowing and all will be well.
My response to that economic thesis can be summarized in one word : piffle !
My normal source for economic commentary and advice is my local IGA manager so I put it to him to explain why pretty well every product in his store had gone up in price in recent weeks and months : he gave me three reasons.
First and foremost was the cost of freight, more specifically petrol and diesel which due to embargoes and sanctions on oil production in places ranging from Venezuela, Iran, Iraq and the Russian Federation has meant that the world is reliant on Saudi Arabia and the UAE for our oil supplies and they are quite content to screw us for all we’re worth while they can – they see the coming revolution in electric vehicles and transportation as impacting their business model so they are getting in for a quick quid while they have a captive customer base – hence fuel is costing a lot more money at the pump and goods are landing on the shelves at IGA with an additional premium.
The second reason is climate and floods mainly impacting lettuce, tomatoes and other fresh veggies : this he says will pass as we move towards spring and domestic production gets back online – who eats salads in winter time anyway ? Oddly in my local area growers have been harvesting and dumping large quantities of Avocado in recent times as there is evidently a glut and it’s not worth taking them to market – go figure.
The third reason is a very human attribute summed up as hopping on the bandwagon. A very cynical approach by some suppliers of goods and services who see prices going up all around and decide to bump up their prices just for the sake of it.
So, the question is will actions taken by the Reserve Bank on Tuesday, by way of increasing interest rates, ease inflation in Australia. My IGA manager, adopting a term favoured by economists, says : pig’s arse they will !
What do you think ?
PS : The captioned photo of Clive Palmer has nothing to do with this article but I couldn’t resist it – this was one of the few occasions, when as a sitting member, he actually made it to the parliament and stayed awake (briefly).
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