Inflation: How low can it go?

Thu, 07 Nov 2019  |  

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: 


Inflation: How low can it go?

The Reserve Bank of Australia’s policy embarrassment continues with the September quarter consumer price index data showing the quarterly underlying inflation at 0.4 per cent, which translates to an annual rise of just 1.4 per cent.

In underlying terms, annual inflation has never been lower.

This locks in 4 straight years where underlying inflation has been below 2 per cent, the bottom of the RBA’s 2 to 3 per cent target.

It locks in 5 years where inflation has been at or below 2.5 per cent, the mid-point of that target.

It locks in just under a decade since inflation was above 3 per cent.

Missing the inflation target so badly for such an extended times says quite plainly that the RBA policy actions were wrong, particularly when other central banks around the world were able to meet their inflation targets with pro-active monetary policy settings.

Until the post-election interest rates cuts which have seen the official cash rate belatedly reduced to 0.75 per cent, the RBA held interest rates at a high level. So high, in fact, that annual economic growth slumped to a decade low under 1.5 per cent, this has seen the unemployment rate remain at or above 5 per cent and wages growth tracked plumbed near record lows.

Sure, the Morrison government’s quest for a budget surplus did not help as spending was cut and tax revenue sucked cash out of the economy, but for month after month, year after year, the RBA felt it better to keep a tight reign on monetary policy as it sought to deflate the growth in household debt and house prices. The RBA continues to drag out academically pure, but practically misguided, excuses about an unanticipated lift in the workforce participation rate as being a problem; or globalisation as a reason for low inflation.

To a point, this is fair enough.

But these are not new things that just popped up overnight. The RBA and other central banks saw these issues emerge years ago but it was the RBA which failed to fully appreciate the effect they would have on growth, wages and inflation. When the rest of the industrialised world was cutting interest rates to towards zero or less and some even embarked on quantitative easing, the RBA held rates steady, at a relatively high level.
It is noteworthy that since the RBA resumed the rate cutting cycle in June 2019, there are clear signs that the economy is poised for a stronger year of growth in 2020 and 2021.

Monetary policy works.

To its credit, the RBA had a rethink of policy a few days after the Federal election (is the RBA politically biased?) and it has cut interest rates three times in five months. There are signs this has worked. Look at house prices, retail spending, capex expectations, the low Aussie dollar and exports, to name a few areas to have benefited for policy stimulus. And the full effect of the interest rate cuts is yet to show up in most data, such are the lags in policy changes.

These lags will mean that the unemployment rate will probably not start to fall until the first half of 2020 which will only then see wage growth move higher and only then, is inflation likely to accelerate from the current record lows.

Inflation is the most lagging of lagging indicators.

Such is the problem with the RBA policy error in recent years – it takes considerable time to turn an economy around and an earlier policy move, when it was obvious the inflation target was being missed, would be yielding benefits now.

That said, the economy appears to be turning and while a further final 25 basis point rate cut might still be needed, the prospects for the inflation rate to reach the mid-point of the RBA target seems limited. Needed are quarterly inflation readings of 0.6 or 0.7 per cent which in turn requires annual GDP growth to exceed 3 per cent and the unemployment rate to track below 4.5 per cent. That scorecard of economic indicators are possible by late 2020, and would get a helping hand if the Morrison government were to use the mid-year budget update in December to ramp up government spending and/or give some tax relief.

Let’s hope they do it.


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How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link: 

How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: 


Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.