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Inflation! Or is somebody having a lend of us?

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.

 

Image from australianunions.org.au

 

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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15 comments

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  1. Phil Pryor

    I “love” that picture, (gag) undoubtedly an advertisement for obesity, degradation, denial, delusion, dickheadery and devious disastrous desipience. Palmer, the pork pie of pathetic politics…

  2. New England Cocky

    If the Reserve Bank is keen on controlling residential real estate prices in Sydney then they will have to get the NSW COALiiton misgovernment to withdraw their offer to North Asian persons to assist with the citizenship applications after four years of ”residence” at 30 days per year in properties purchased from overseas.

    @ Terence Mills: is there any truth to the rumour that Scummo is attempting to outdo Clive in the number of days he reports absent from Parliament before he formally ”retires” to enjoy his ill-gotten past Prim Monster allowances at Australian taxpayer expense?:

  3. Harry Lime

    Terence,you’re right about us,the great unwashed, being screwed..it’s only a matter of by whom,and how much.Nothing much is going to change for the better until we take back our governments from the filthy,greed driven corporations, who spend more money on tax avoidance than they pay in tax.Comforting to know that we, the garden variety shitkickers actually subsidise them in their corrupt ways.It’s all going terribly well.An economist who actually might know what they’re talking about (Joe Stiglitz?) are as scarce as rocking horse manure.
    Nice photo of mudguts Palmer…there’s not enough money on the planet to persuade one to trade faces with him.,same Rupert the breathing corpse,Gina the Hutt, and so on.Can any of them buy a Stairway to Heaven?

  4. Paul Bouckley

    One cure would be for the USA to drop all sanctions on oil producing countries.

  5. Andrew J. Smith

    Another aspect of ‘inflation’ in the media, apart from presenting as a crisis, is statistics 101 where the headline number does not explain individual impact, good and/or bad.

    Further, along with ‘cost of living crisis’ there are many on lower incomes e.g. below median for which this is permanent (on needs not desires), but for many in media and higher income the impact is negligible; also those who do not have a motor vehicle, may have mortgage paid off, and neither dine out nor travel.

    One suspects there is something tactical in how the media bangs on about cost of living and/or inflation but unclear what their solution is and do they really care about those on below median incomes?

  6. Michael Taylor

    Terry, regarding cost of freight…

    When working in the Aṉangu Pitjantjatjara Lands twenty years ago it was calculated that the added cost of freight on the weekly shopping was $80 per family.

    Outrageous.

  7. Max Gross

    Oh that’s Clive, is it? I thought it was Mr Creosote from Monty Python’s “Meaning of Life”.

  8. GL

    Looking at the photo made me think that that was the moment when Clive realised that he forgot that he had set his anal vibrator to automatically switch on when it detected that maybe he had died in his sleep.

  9. Terence Mills

    Hi Michael

    I’m not familiar with the APY arrangements but it’s interesting that the Torres Strait Islands – possibly the most remote indigenous communities – receive government subsidies for freight and through the ‘Islanders Board of Industry & Service’ (IBIS) maintain retail outlets on all of the occupied Torres Strait islands, some 17 islands.

    In a 2009 comparison of prices.on various items between Coles supermarket in Cairns ( the nearest mainland port) and IBIS stores in the Torres Strait revealed that :

    ® Red globe grapes: IBIS $3.99 kg Coles $4.98 kg
    • Cavendish Bananas: IBIS $1.99 kg Coles $2.48 kg
    « Shepherd Avocados: IBIS $4.99 kg Coles $7.63kg
    ® Tomatoes: IBIS $3.49 kg Coles $3.48 kg
    « Continental Cucumbers: IBIS $1.49 kg Coles $2.79 kg
    ® Amber Jewel Plums: IBIS $3.99 kg Coles – none sold; Super IGA $6.99 kg

    The subsidised sea/airfreight system operating essentially between Cairns and the Islands clearly worked at that time and as IBIS has government oversight, price gouging all but is eliminated.

    Things may have changed as up to date data is not easy to find.

    http://www.aphref.aph.gov.au_house_committee_atsia_communitystores_subs_sub0028a-1.pdf

  10. Keitha Granville

    Until large corporations pay the same tax as the rest of us mugs it will not change. Some businesses actually did well during the pandemic shut phase, as opposed to the thousands of event workers who totally went without. As long as the wealthy run the joint, they will remain wealthy while we plebs struggle.

  11. Terence Mills

    The Reserve Bank decided on Tuesday to opt for a half percent increase in interest rates. They say that, to contain inflation, they want to see Australians borrow and spend less.

    The immediate impacts seem to be :

    People with existing variable interest loans will be hit with increased repayments so their spending will reduce (other than on their mortgage) – banks win.

    Borrowing becomes harder diverting money away from spending – unless you are a property speculator where you can borrow and pass on any interest increases to tenants.

    Rents go up as investors ensure that they are not punished by the increasing interest rates – renters have less for discretionary spending including clothing and food !

    On the plus side, in some cases savers may earn higher returns.

    Doesn’t seem to make much sense to me but then I’m not an economist.

  12. Harry Lime

    Phil ‘the rates whisperer’ Lowe is a dead man walking..should be a shoo-in for a gig with Macquarie.We are still practicing Voodoo economics..when will the penny drop?

  13. GL

    Harry,

    I wouldn’t be surprised if Goldman Sachs snaps him up.

  14. leefe

    GL:

    They have to if they want their laws to be consistent. They keep saying “it’s a person” in order to prevent people from accessing health care; at least this fits with that.

    If only they cared as much about people after they were born …

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