Latest US inflation data is no cause for alarm – the trend is down

It’s Wednesday and I have looked at the US CPI release overnight that has set alarm bells off in the ‘financial markets’ and among mainstream economists. My assessment is that there is nothing much to see – annual inflation less volatile items is still falling and the lagged impact of shelter (housing) is still evident even though that component is also in decline. I also examine an argument that the trend towards increasing self-reliance among nations is likely to precipitate renewed global conflict. My own view of this trend is that it must accelerate to allow us to shift to a degrowth trajectory. And I finish with some fine concertina music.

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Australian inflation rate remains on a downward trajectory

Today (February 28, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for January 2024, which showed that the inflation rate steadied at 3.4 per cent but remains in a downward trajectory in Australia as it is elsewhere in the world. Today’s figures are the closest we have to what is actually going on at the moment and show that the inflation was 3.4 per cent in January 2024 but many of the key driving components are now firmly declining. The trajectory is firmly downwards. As I show below, the only components of the CPI that are rising are either due to external factors that the RBA has no control over and are ephemeral, or, are being caused by the RBA rate rises themselves. All the rate hikes have done is engineer a massive shift in income distribution towards the rich away from the poor. The slowdown the Australian economy is experiencing is largely due to fiscal drag not higher interest rates.

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US inflation rate is declining – no case for further rate rises

It’s Wednesday and I have comments on a few items today. I haven’t been able to write much today because the power has been down after the dramatic storms yesterday in Victoria damaged the network and caused absolute chaos (see below). Power is mostly back on now (which is why this post is later than usual). The US CPI data released yesterday showed that inflation continues to decline and the so-called ‘surprise’ that seems to have shocked the ‘markets’ are mostly down to the eccentric way the US Bureau of Labor Statistics calculates housing costs. The data provides no justification for further rate hikes in the US or anywhere else for that matter. I also report on an interesting survey from Japan regarding local attitudes to foreigners. I don’t think it reflects Japanese insularity although many will conclude otherwise. Then some Wayne Shorter.

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New research report finds massive price gouging across all sectors of Australian economy

Over the last few years, the RBA has been emphatically denying that price gouging from corporations with significant market power has been driving the movements in the inflation rate. They knew that if they conceded that reality then there would be no justification for the 11 interest rate hikes they have introduced since May 2022. It was obvious that firms were pushing up profit margins – that is, increasing prices beyond the increases in costs. Still, the RBA denied it and claimed that firms were facing wage pressures and excessive demand, which justified the interest rate rises, despite the evidence not being supportive. On Tuesday (February 6, 2024), a new study has found that there is massive price gouging across all sectors of Australian economy by corporations, many of them operating in sectors that were heavily privatised (for example, airlines, electricity, child care, banking). There is systematic profit margin push going on which has been a significant contributor to the persistent inflationary pressures. These findings strip the RBA of any justification for their unconscionable rate rises which have transferred billions to the financial elites at the expense of low income mortgage holders.

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Australia – inflation falling rapidly

Today (January 31, 2024), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the December-quarter 2023. The data showed that the inflation rate continues to fall sharply – down to 4.1 per cent from 5.2 per cent in line with global supply trends. There is nothing in this quarterly release that would justify further interest rate rises. Yesterday, the ABS published the latest – Retail Trade – data for December 2023, which showed a marked slowdown in consumer spending in December 2023 after many consumers brought forward spending in November 2023 to take advantage of the discount sales. So it is likely that overall spending is subdued and I expect the inflation rate to continue to decline in the next three months.

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Japan inflation now falling fast – monetary and fiscal policy settings have been vindicated

The latest information from Japan suggests that in December 2023, its inflation fell sharply for the second consecutive month and that one might conclude the inflation episode is coming to an end. The Bank of Japan made the assumption that this supply-side inflation was temporary and would subside fairly quickly once those constraints eased. And they were right. All the other central banks somehow convinced themselves that the inflation was demand-driven and have been needlessly pushing up interest rates. The experiment is nearly over and I think it is clear that the Japanese path was the sound one. At that point, the New Keynesian academics and officials should resign. After that, as it is Wednesday, we have some music to soothe our souls.

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Australian inflation rate falls sharply as supply pressures ease

Today’s post is a complement to my post on earlier this week – So-called ‘Team Transitory’ declared victors (January 8, 2024). Yesterday (January 10, 2024), the Australian Bureau of Statistics published the latest – Monthly Consumer Price Index Indicator – for November 2023, which showed another sharp drop in inflation. The data are the closest we have to what is actually going on at the moment and it is clear that the falling inflation that began in September 2022 is continuing at a fairly brisk pace. The annual rate is now down to 4.3 per cent from 4.9 per cent in October 2023. The main driver of inflation over the last few years has been fuel prices and automotive fuel inflation has fallen from 19.7 per cent in September 2023 to 2.3 per cent in November 2023, due to global factors quite independent of domestic monetary policy. In fact, as the time passes we get a much clear reinforcement of the transitory narrative driven by supply factors rather than demand factors. This narrative has also been given weight by a recent research paper from the ECB – What drives core inflation? The role of supply shocks (published November 13, 2023). Overall, the data is now exposing the folly of the New Keynesian macroeconomic policy approach which prioritises monetary policy as the counter stabilising tool and has considered the inflationary episode to be due to excessive government spending.

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Whether real wages have stopped declining depends on how one measures it

For the time being I will continue my Wednesday format where I cover some things that crossed my mind in the last week but which I don’t provide detailed analysis. The items can be totally orthogonal. The latest inflation data for Australia continues to affirm the transitory narrative – dropping significantly over the last month. I will analyse that tomorrow in the context of a recent ECB paper that decomposes the different factors that drove the inflationary pressures across the globe. Today, I consider the basis of a claim by the Australian Treasurer that real wages are now growing. Like many things in statistics, the numbers can say almost anything that you want them to via different ways of measurement and combination. In one sense, the Treasurer is correct. But when we use a more careful method of calculating purchasing power loss, he is incorrect. If the Treasurer was wanting to be really honest with the Australian people he would admit that rather than try to score petty political points against an opposition that has no clue at all. I also consider the role of the US in the on-going massacre of innocent people in Gaza. The US could stop the conflict immediately and the fact that they don’t demonstrates the poverty of the capitalist system in terms of advancing humanity in general. And some old folk music to finish.

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So-called ‘Team Transitory’ declared victors

On June 8, 2021, the UK Guardian published an Op Ed I wrote about inflation – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman. In that article, and in several other forums since – written, TV, radio, presentations at events – I articulated the narrative that the current inflationary pressures were transitory and would abate without the need for interest rate increases or cut backs in net government spending. In the subsequent months, I received a lot of flack from fellow economists and those out in the Twitter-verse etc who sent me quotes from the likes of Larry Summers and other prominent mainstreamers who claimed that interest rates would have to rise and government net spending cut to push up unemployment towards some conception they had of the NAIRU, where inflation would stabilise. I was also told that the emergence of the inflationary pressures signalled the death knell for Modern Monetary Theory (MMT) – the critics apparently had some idea that the pressures were caused by excessive government spending and slack monetary settings which demonstrated in their mind that this was proof that MMT policies were dangerous. Of course, they were just demonstrating their ignorance (deliberate or otherwise) of the fact that there are no MMT policies as such. MMT is an analytical framework not a policy regime. Anyway, in the last week, on mainstream economist seems to have recanted and has admitted that “Those who believed inflation would be transitory were proven right, and those who demanded the sacrifice of mass unemployment proven wrong”. For those E-mail warriors who think it is okay to send abusive messages to people you don’t know (or abusive messages in general) please do not send me apologies!

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The parallel universe in Japan continues and is delivering superior outcomes, while the rest look on clueless

It’s Wednesday and I have some commitments in Melbourne (recording a podcast with the Inside Network) and that requires some travel. So time is tight. Today, I update the latest from Japan courtesy of yesterday’s release from the Bank of Japan of its ‘Statement on Monetary Policy’. The parallel universe continues and is delivering superior outcomes, while the rest of the world’s policy makers, smitten with neoliberal nonsense, have their heads in the sand and the economies are turning to dust. I also provide some links to the video recording of the launch of the Japanese version of Reclaiming the State, which was held in Kyoto in November 2023. And I provide some links to a major article that I was featured in with one of Japan’s leading magazines. And if that isn’t enough, we have Voodoo Child.

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