CPI up again

The ABS has just released the CPI figures for the June quarter. It looks ugly – here is our coverage of the March quarter. Food prices over the last year lead the pack. The increase in the prices for Education are also very high (how’s that education revolution working again?).

If you take a backward look at the RBA indicators over the last year they remain within the 2 – 3 percent band at 2.7 percent. But if you look at the last quarter (as Chris Joye suggests) then they’re outside the 2 – 3 percent band. Not only would they be outside the band for the second consecutive quarter but they’re rising too.

This makes the RBA’s job very difficult. As of last night the bond market is suggesting a decline in rates (that link updates every day).

But inflation is up and the economy is sluggish. It is too early to dust off the dreaded ‘stagflation’ term to describe the economy? The next set of national accounts comes out in about 6 weeks time (7 September 2011) – there should be some very worried people in Canberra right now.

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87 Responses to CPI up again

  1. Infidel Tiger says:

    As if retail wasn’t already cooked. Any interest rate rise and the nation’s high streets are going to resemble Detroit.

  2. Adrien says:

    Any interest rate rise and the nation’s high streets are going to resemble Detroit.

    Not that bad.

    But Melbourne’s more fashionable inner-city boutique spots are closing. Being on the verge of some new enterprises this is convenient for me as long as it doesn’t last too long.

  3. johno says:

    Seems like a really good time to be introducing a Great Big New Tax. I’m so glad it is only on the Big Pollutors and is unlikely to lead to widspread price increases that could tempt the RBA to increase interest rates in an attempt to slowdown a sluggish economy.

    Why is it that our thoughts always turn to ‘stagflation’ following a period of Keynesian inspired pump priming? There can’t be a case of cause and effect. If it was then the Great Lord Keynes and his diciples would have forseen it and warned us about it! 🙂

  4. Adrien says:

    It is too early to dust off the dreaded ‘stagflation’ term to describe the economy?

    Yes let’s wait until power bills go thru the roof.

  5. Infidel Tiger says:

    Thank god for online shopping and FedEx.

  6. Gabrielle says:

    Thank god for online shopping and FedEx.

    My only wish is to find an online supplier of incandescent lightbulbs suitable for use here. *sigh*

  7. JC says:

    This looks seriously ugly especially with the RBA’s mandate.

  8. C.L. says:

    You know what’ll solve this?

    An inquiry into media ‘bias,’ that’s what.

  9. Gabrielle says:

    This is all Murdoch’s fault anyway.

  10. C.L. says:

    Predicted impending headline:

    Swan Blames Bananas

  11. C.L. says:

    D’oh. Most sensitive blog spam eveh!

  12. TerjeP says:

    It still irks me that one of the most important prices in our economy, the price of overnight credit, is dictated by a small group of government appointed technocrats. As a socialist solution it’s pretty good but it sure as heck isn’t a free market solution.

  13. John Comnenus says:

    Johno is right. Every time the government tries the two bit Keynseian trick of trying to grow the economy by growing the public sector we end up with less economic growth, less employment and higher prices.

    And the Governor of the RBA was reported on ABC to have said it was all due to foreign induced uncertainty, although he did argue for productivity improvements. Being on the ABC the report could all be partisan spin and be totally wrong just like Allan Kohler disgraceful comments last night on ABC News about US debt. His comments were completely opposite to what his backing graph showed. Thank goodness I have Fox IQ so I could stop the graph and double check whether Kohler is either a liar or stupid!

    So what does Australian business and consumers have to look forward to: A new CO2 Tax that makes all goods more expensive, makes imports cheaper and our exports more expensive, more expensive and less reliable energy supplies, increased industrial disputes in mining – which is waiting to get another big tax that will make it less competive. Luckily the Federal Government does tax mining profitability or you would expect mining profits, and hence Federal income to fall. And ofcourse we face a total crackdown on free speech in the media.

    Wow. What could possibly be holding back consumer sentiment?

    By the way when we avoided recession in 2009 quarterly trend GDP went from -0.1 to +0.3 in a quarter or a +0.4% turnaround after massive stimulus. In seasonally adjusted terms it went from 0.4 to 0.6 or a turn around of 0.2%. Last quarter trend GDP was down -0.2 and seasonally adjusted it was -1.2. It seems unlikely that a recession can be avoided in seasonally adjusted terms although the trend figure might be an weak 0.2 or so growth. When do June quarter GDP results come out? It must be soon.

    A recession is just what the nation needs. Should do wonders for the Government’s polling numbers.

  14. TBH says:

    So what should the RBA do folks? Leave rates on hold and inflation gets worse or raise them and nip it in the bud? Are there other possibilities?

  15. Skuter says:

    My fellow economists in Canberra should have been worried a long time before now. Keynesians are dominant unfortunately, but I wonder how long it can last. I have been talking about stagflation for months but no-one seems to listen or care…These are the same people that think that they can seamlessly engineer a transition to a clean energy future…slightly OT, but one thing that always makes me wonder, if reducing carbon dioxide emissions is such a priority, why not embrace recession? A decline in output is the surest way to achieve it, at least in the short-term, and think of all that idle labour and capital that could be redeployed to the jobs of the future!

  16. Infidel Tiger says:

    if reducing carbon dioxide emissions is such a priority, why not embrace recession?

    That’s the Greens policy isn’t it? A No Growth Future.

  17. twostix says:

    A recession is just what the nation needs. Should do wonders for the Government’s polling numbers.

    I think the Labor party would be finished off for good.

    Which would not necessarily be a good thing because the Greens would increase in numbers with no better alternative.

  18. Infidel Tiger says:

    Maybe the Libs could split into Wet and Dry factions and we could finally have sensible alternatives?

  19. Skuter says:

    That’s the Greens policy isn’t it? A No Growth Future.

    Certainly that’s their plan for NewsCorp – opportunist arseholes…Once again, OT, but I have had people telling me with a straight face that I am being melodramatic about Green threats to regulate media content. Apparently, it was just poorly chosen words.
    Getting back on topic, watching Swan on Sky News, and guess what – it is bananas that are responsible for the high CPI. Good call C.L. Nothing at all to do with rising unit labour costs and low productivity. Is underlying inflation high? At a guess (haven’t checked the figures yet), I reckon it would be. How anyone can still believe in output gap based theories of inflation is beyond me…Phillips curve…pffft!

  20. johno says:

    ‘So what should the RBA do folks? Leave rates on hold and inflation gets worse or raise them and nip it in the bud? Are there other possibilities?’

    TBH – I appreciate the RBA’s dilemma and, as I’m not a monetary expert, I have no view on whether they should hold, raise or lower interest rates or when. Nor do I know what the other possibilities are.

    The point I make is why is the RBA in this position. Put simply, Rudd’s decision to spend big following the North Atlantic financial crisis plunged the Commonwealth’s budget back into deficit and debt. This was inflationary and, by diverting resources away from more productive uses, has contributed to an economic slowdown. We didn’t have to be here if Rudd and Gillard were better economic managers.

    Terje point is also worth emphasising. A government imposed price control isn’t a free market solution. Would we be in this situation if governments didn’t try to use monetary instruments to sort out their fiscal mistakes?

  21. sdfc says:

    TBH

    The RBA is going to want to avoid a repeat of 2007-08 so its finger will well and truly remain on the trigger.

  22. Fleeced says:

    Did banana prices change in June quarter? From memory, they went up in the first quarter, and then stayed there.

  23. sdfc says:

    Johno

    It is a global financial system. Calling the GFC a purely North Atlantic event is pure codswallop.

  24. sdfc says:

    Fleeced

    Fruit was the major contributor to the headline increase. I’m guessing bananas played a role.

  25. JC says:

    Predicted impending headline:

    Swan Blames Bananas

    lol

  26. daddy dave says:

    Getting back on topic, watching Swan on Sky News, and guess what – it is bananas that are responsible for the high CPI.

    Un.
    Believable.
    The country really is being run by a bunch of morons.

  27. Fleeced says:

    “Fruit was the major contributor to the headline increase.”

    For the annual rate, I’d say it was… but the quarterly rate is still pretty high at 0.9%, and my memory says we were already paying $12+/kg for bananas by April. It’s possible I remember incorrectly – I just know I haven’t had a smoothie in ages.

    In fact, looking at the quarterly figures, the biggest increase was for clothing and footwear (2.5% over the quarter, compared with 1.1% for the whole year!)

  28. daddy dave says:

    That’s the Greens policy isn’t it? A No Growth Future.

    The only industries these idiots are in favour of are industries that don’t exist yet (or are currently very small but with ‘potential’).

    Hence the NBN will create new industries of the future; and our decarbonised economy will have lots of green industries.

    As for real life, here-and-now industries that are actually working, they want to shut all those down.

  29. Infidel Tiger says:

    How in God’s name can the price of clothing and footwear beincreasing with our dollar where it is? For heavens sake, shop online people and put these thieves out of business.

  30. sdfc says:

    Fleeced

    A 27% rise in fruit prices was responsible for 0.4pps of the 0.9% rise in Q2.

  31. Token says:

    More hyperbowl from the Goose

    Remember the days when Swan had some people fooled he knew about economics and he talked about the great bent yellow shield?

    …they will attempt to use bananas as a shield, and don’t forget bananas — they are
    yellow and they’re bent — they will attempt to use bananas as shield…

  32. sdfc says:

    The ABS put most of the increase in fruit prices down to a 138% increase in bananas. The difference between your memory and the ABS figure may be a timing issue to do with when in the quarter they collected the data.

  33. Skuter says:

    Fleeced, your recollection is similar to mine. Banana prices haven’t gone anywhere in the last quarter. Our high inflation figures are merely a series of one-off factors according to Swan. Oh, and the NBN is the greatest thing for productivity since the wheel…the guy is smoking some of the finest crack in the land…

  34. C.L. says:

    Nice get, Token.

    LOL.

  35. Fleeced says:

    Fair enough.

  36. Token says:

    Goose said all this with a straight face and the Lachlan Harris made sure people like me could find it easily.

    The most important thing that Labor has to do is put forward an alternative economic vision which convinces people that we can put downward pressure
    on interest rates anddownward pressure on inflation.

    That’s critical.

    That means we are going to have to have a very tight fiscal policy, and I have already outlined our fiscal rules prior to the last budget. But we also need a new investment agenda, and for the past eighteen months we have been outlining precisely that. A new investment agenda to lift productivity in this economy, and to create wealth in a non inflationary way.

  37. Paul Williams says:

    If bananas control the Australian economy, and the Australian economy controls world temperatures, then a banana tax should sort out climate change.

    Only denialist hate media would disagree!

  38. Viva says:

    watching Swan on Sky News, and guess what – it is bananas that are responsible for the high CPI.

    Well waddya know – Keating was right. We’ve finally become the dreaded Banana Republic

  39. sdfc says:

    I might add Fleeced that the rise in banana prices was excluded from the underlying inflation measures which were also high.

  40. Fleeced says:

    Well waddya know – Keating was right. We’ve finally become the dreaded Banana Republic

    I was just about to say that…

  41. Token says:

    This is the gift that just keeps on giving…

    MAXINE MCKEW: Let’s move to the inflation figures we saw this week, consumer prices up nearly four per cent over the year. I’m just wondering, how do you see the mid term outlook for inflation because the Treasurer made the point this week some of the current factors feeding into inflation, food and petrol, will certainly ease over the next year.

    WAYNE SWAN: This is the Treasurer’s banana alibi again.

  42. Fleeced says:

    So should RBA lift rates?

  43. Gabrielle says:

    If bananas control the Australian economy, and the Australian economy controls world temperatures, then a banana tax should sort out climate change.

    Only denialist hate media would disagree!

    Listen when you quote Swan you need to say that, them’s the rulzs.

  44. sdfc says:

    I was once told by my boss that our clients weren’t interested in what I thought the RBA should do but rather what I thought they would do.

    So in short I think they should sit tight however given their inflation target I think they will tighten, if not August then later in the year.

  45. Viva says:

    I was just about to say that…

    Hey Fleeced, my brother taught be a great comeback if someone gets in just before you – “I thought of that and rejected it”.

  46. Skuter says:

    If only we had fuelwatch and grocerywatch in place now. If not for the relentless negativity of the opposition, we could have killed off the inflation genie once and for all by now…

  47. Jc says:

    Shane Wand better be careful here because the most dangerous thing for a politician is when he’s laughed at and ridiculed.

    Blaming it on bananas could turn him into an object of ridicule… Not just by us, but the journos and the wider public.

  48. Paul Williams says:

    Listen when you quote Swan you need to say that, them’s the rulzs.

    No, no. It’s in the Green’s manifesto.

    The section that begins; “Once Australia has been transformed into a banana Republic…”

  49. C.L. says:

    Gillard won’t be seen with Václav Klaus but she seems happy to be seen with these inflation terrorists.

  50. C.L. says:

    WAYNE SWAN: This is the Treasurer’s banana alibi again.

    Ahahahaha.

    Gold.

  51. daddy dave says:

    WAYNE SWAN: This is the Treasurer’s banana alibi again.

    I’m getting mixed up between actual quotes that Swan said versus mock quotes from people who are just taking the piss.
    There’s no difference.

  52. Gabrielle says:

    Swan’s theme song.

  53. twostix says:

    A 27% rise in fruit prices was responsible for 0.4pps of the 0.9% rise in Q2.

    Which is of course absurd, Bananas have remained static, but pears and apples have never been cheaper.

    Woolies has been selling apples for $3/kg for ages. We were buying pears for $1 a kilo last month.

    Also:

    electricity (-1.5%)
    rents (+1.1%).

    Seriously, the price of electricity has apparently gone *down* and rents have gone up by just 1% (increased by $3.50 a week on an average house). Where? Booroowa?

    The figures, as usual, might as well have been pulled out of a magic hat.

  54. C.L. says:

    Waaaaaaaaaaayne-oh!

    Waaay-aay-aayne-oh!

  55. Infidel Tiger says:

    Bloody beer and cigs are through the roof, I know that. And a chicken parmy might as well be flaked in gold leaf.

  56. Gabrielle says:

    Dear Catgrocerywatch,

    Fish? What’s the price of fish these days?

    Ta.

  57. sdfc says:

    Twosix

    You just keep believing what you want to believe.

    Those of us inhabiting the real world however will continue to rely on the ABS for our information.

  58. Adrien says:

    That’s the Greens policy isn’t it? A No Growth Future.

    Yeah, it’s not too well thought out.

  59. Capitalist Piggy says:

    “Inflation is always and everywhere a monetary phenomenon.”
    – Milton Friedman

    Broad money currently growing at 8.7%pa (highest in almost 2 yrs) and M3 growing at 10.6%pa. But since there is little evidence of credit growth among households or businesses, who is spending all this new money? My rough guess is the public sector.

  60. Jc says:

    Done on an iPad so no proof reading.

    Cap

    I think the right has gone horribly wrong on this and I think we’ve lost a bit of coherence.

    We want spending cuts and yet we also want to see the fed tighten up.

    That would be a freaking disastrous combo.

    I’m glad you brought up milt because he would have looked at this thing and Im sure he would have said,

    Yes we need to bring down the deficit but we also need to ensure the fed is not conducting a tight monetary policy to go with the the fiscal tightening.

    He would have advocated more QE action by the fed while fiscal retrenchment was acted on.

    The right misses milt like crazy as he was what kept the economic side together and coherent i think.

  61. Jc says:

    Don’t worry about broad money unless it makes it through the banking system and into bank lending.

    This of course is not going to happen because the administration, the previous democratic based congress and the regulators are tightening up on bank credit, so the money is sitting around in bank reserves with the anomaly of banks holding over 1trillion in reserves and not lending.

    The administration also has a lot to answer for because of the anti commerce nature it has taken on.

  62. John Comnenus says:

    Welcome to the thread SDFC. I was missing your wit and wisdom. In these dark days I welcome the levity you bring to otherwise dismal news.

    I know you don’t think that dramatic increases in Government’s demand for money adds to the price of money nor that when you decide to inflate your way out of a problem that you actually get inflation. No, none of our current situation has anything to do with Gillard or Swan’s management of the economy. Its all Murdoch / Bush / Howard fault. Howard got us into this pickle becasue he left a structural deficit (whilst running all those actual suirpluses).

  63. Capitalist Piggy says:

    JC, I think you are referring to the US, but those money supply figures I quoted above are for Australia. I’m guessing it is govt spending that is contributing to today’s CPI, rather than the price of bananas.

    FWIW, the latest US M2 data show strong growth at 6.9%pa (MZM 7.8%pa) which suggests that money is now flowing into the economy.

  64. Ash says:

    For folks with loans, the flood levy can be considered as effective increases in interest rates. Here are some rough calcs*:

    Earning 80k and have a loan of 200k it is equivalent to a 10 basis point increase.

    Similarly, for someone earning 120k and has a loan of 400k it is equivalent to a 15 basis point increase.

    Therefore inflation may not be as big of a problem next quarter.

    *assumptions r=7%p.a., years=30, monthly payments

  65. twostix says:

    Those of us inhabiting the real world however will continue to rely on the ABS for our information.

    LOL

    Ok, I’m just living in an imaginary world. I’ll be sure to wait for the Federal Government to tell me whether my family’s monthly food bill has, in fact, actually gone up and by how much, rather than looking at my own data.

    If the ABS says all fruit has gone up, then damnit it’s all gone up. If the ABS says the rental market is the same, then damnit it’s the same. What we pay at the counter is “not the real world”. You’re right, the real world only exists when the government says it exists.

  66. sdfc says:

    Wow John C

    You managed to get what I was saying about government spending exactly the wrong way around. I have been at pains to say over and over again that government spending is inflationary.

    JC

    Credit standards have loosened in the US. The Fed loan officer survey however continues to report weak credit demand.

  67. John Comnenus says:

    Never mind the Bollocks its time for a reworked version of the Sex Pistols ‘God Save the Queen’

    Bob save the greens
    and their fascist regime
    They made you a moron
    against all carbon

    Bob save the greens
    They hate all human beings
    There is no future
    In Gillard’s dreaming

    Bob’ll tell you what you want
    Bob’ll tell you what you need
    There’s no future, no future,
    No future for you

    Bob save the greens
    We mean it man
    We love our greens
    Bob saves

    Bob save the greens
    ‘Cause eco tourists are money
    And our PM
    Is not what she seems

    Oh Bob save electricity
    Bob save your mad charade
    Oh Lord Bob have mercy
    All carbon is paid

    When there’s no future
    How can there be sin
    We’re the carbon in your carbon sink
    We’re the poison in your human machine
    Bob’s the future, your future

    Bob save the greens
    We mean it man
    We love our greens
    Bob saves

    Bob save the greens
    We mean it man
    And there is no future
    In Gillard’s dreaming

    No future, no future,
    No future for you
    No future, no future,
    No future for me

    No future, no future,
    No future for you
    No future, no future
    For you

  68. sdfc says:

    Actually just looking at the latest data commercial loan demand has recently picked up.

  69. Rococo Liberal says:

    Anarchy in the ALP

    Is this the NSDAP?
    Is this the DLP?
    Is this this ABC?
    I thought it was the ALP, and not just another party
    And I wanna be anarchy

  70. John Comnenus says:

    Nice work rococo. Maybe it’s time for the Ramones I wanna be sedated!

  71. JC says:

    Oh Okay Cap. That’s fine. I think the RBA is also too tight here as the yield curve is really flatish.

    I have a theory that in some ways flat yield curves can be sometimes more pernicious than inverted ones.

    At least with inverted yield curves the street is aware the central bank is too tight and will eventually loosen. Flat yield curves can be suggesting tightness but everyone, including the Central bank doesn’t mind it, thinking they can remain like that and there will no slowdown.

  72. wreckage says:

    Fruit is seasonal, right? Is any adjustment made for that?

  73. . says:

    You managed to get what I was saying about government spending exactly the wrong way around. I have been at pains to say over and over again that government spending is inflationary.

    RUBINOMICS WIN!!1

  74. sdfc says:

    No wreckage there is no seasonal adjustment in the headline just in the WM and TM.

    They are however introducing sa as of Q3.

    What are you talking about Dot?

  75. . says:

    Fiscal theory of prices and internet memes.

  76. JC says:

    I mentioned on the Bannanas thread the issue about imported prices getting cheaper.

  77. sdfc says:

    As much as it might escape you Dot. Inflation is a monetary phenomenon.

    Deficit spending necessitates public sector debt issuance which has the same effect on the money supply as private sector debt growth.

  78. . says:

    Deficit spending necessitates public sector debt issuance which has the same effect on the money supply as private sector debt growth.

    No. Otherwise the 100% reserve cranks are correct.

  79. sdfc says:

    Dot you are getting confused with government created money and bank money.

  80. . says:

    ???

    You’re saying they have the same effect.

  81. sdfc says:

    No when a bank buys government paper for its balance sheet it creates a money which is then deposited at the RBA.

    When the government spends this money it ends up as deposits in private sector bank accounts.

  82. tbh says:

    So, interest rates: up, down or the same? What’s the consensus? Anybody know of any betting markets tracking this stuff?

  83. Fleeced says:

    Anybody know of any betting markets tracking this stuff?

    There used to be, but ASIC locked it down, ruling that they were derivatives, and they don’t have a financial services licence.

  84. . says:

    No when a bank buys government paper for its balance sheet it creates a money which is then deposited at the RBA.

    When the government spends this money it ends up as deposits in private sector bank accounts.

    This is precisely why the cranks are wrong and the effects on money supply are not the same. The private money is not necessarily inflationary.

  85. sdfc says:

    Now we’re getting somewhere. When private sector credit outstanding is declining as it did in the US it is fair to say that the economy is in a deflationary environment. This is a recipe for disaster in a high debt economy. The inflationary impact of public sector deficit spending by supporting private sector income can help keep an economy out of deflation.

    This is particularly so when monetary policy loses its effectiveness as we saw during the height of the US recession when private sector credit outstanding continued to fall despite the Fed cutting the cash rate to near zero.

  86. It seems clear enough that the nonproductive spending this government has done, whilst borrowing a billion a week, is churning the economy.

    I don’t buy the argument that the NBN is a great infrastructure creation project, and even if it was the enterprise corruption associated with it just adds to the bloat.

    We have far too many bureaucrats, far too many industries affected by unionists and far too much government money spent on bribes and marketing. None of this enormous spend is growing anything, it’s all just money down the drain.

  87. hzhousewife says:

    “The next set of national accounts comes out in about 6 weeks time (7 September 2011) – there should be some very worried people in Canberra right now”

    why exactly should people in Canberra worry – they are going to get their same salary no matter what.As a business owner, I’m just hanging out for some of them to be retrenched and suddenly need a job, and buy my business ( and no, I don’t run a brothel LOL )

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