It’s Wednesday and I am still not up to full blog speed after a week doing other things. But I am getting there. Today we consider the latest inflation data from Australia, some fun in the Guardian newspaper and some nonsense about debt ceilings in the US. Then a visit to Paris.
Monthly inflation data published by the Australian Bureau of Statistics today
Today (January 11, 2022), the ABS published its – Monthly Consumer Price Index Indicator – for November 2022.
Remember, this monthly edition is a new innovation at the ABS and doesn’t include all the relevant information that appears in the standard quarterly CPI release.
It is also some 6 weeks behind in relevance.
The data shows that:
1. “The monthly CPI indicator rose 7.3% in the twelve months to November” up from 6.9 per cent in October and back to the September 2022 level.
Should we be worried?
When one digs deeper we see a major jump in Automotive fuel in November 2022 – up from 11.8 per cent to 16.6 per cent annualised.
But hasn’t oil and petrol prices fallen around the world?
So what gives?
The answer is that the Federal government has abandoned its 22 cents excise cut that the previous government introduced.
That explains most of the rise in petrol prices.
So, nothing to do with the state of the fiscal deficit or aggregate spending.
Purely an administrative decision, which often drive price movements independent of the state of the economy and are often ignored by commentators who are intent on somehow blaming excessive deficits etc.
Further, housing (new dwellings) has been driving the CPI previously and there was a major fall in the price rise for that component in November.
I can testify personally that constraints on new building are declining as more materials become available.
Food remains a major factor and the ABS note that:
Over the twelve months to November price rises were seen across all food categories. These rises reflect a range of price pressures including supply chain issues and increased input costs …
Fruit and vegetables rose 9.5% in the year to November. This subgroup continues to be impacted by flooding, heavy rainfall and hail in key growing areas, alongside high transport and fertiliser costs.
There are terrible floods in Australia at present which are driving shortages.
Further, the OPEC price gouging is feeding through the supply chain by elevating transport costs.
The same impact is being felt by travel costs.
All of these factors are transitory and independent (largely) from the state of demand.
There is absolutely no justification in this data for further interest rate rises, even though the RBA will continue to hike rates – because it can.
UK Guardian telling the truth
I liked the Editorial in the UK Guardian (January 2, 2023) – The Guardian view on excessive unemployment: the creation of unnecessary suffering – which supported my view that:
… the current bout of inflation is transitory …
Which means there is no justification for central banks trying as hard as they can to create recessions and mass unemployment.
One comment said that by (me and the UK Guardian):
Referring to Japan and its Central Bank as an example to follow is extremely bold. Japan looks increasingly like Titanic before it hit the iceberg
Not bold at all.
Ground in reality and experience.
Mainstreamers have been predicting that Japan would hit the iceberg for around 3 decades. As each prediction fails a new one (the same) follows it, only to meet its own failure.
Japan has issues for sure but they do not relate to public finances or central bank policy.
I suggest these commentators go live there for a while and seek an understanding of what it happening.
Anyway, the sort of commentary was then followed by accustations that I am a “bastard” – FYI: In my office drawer, I have a birth certificate which attributes my birth to two married adults now deceased.
But this commentator had a plan for me:
… ought to be abandoned upon a fertile desert island …
Doesn’t sound too bad actually as long as there is some surf and running tracks.
Another commentator who signed off “I’m no economist” had previously concluded based on some economic facts that “Suggesting we follow the Bank of Japan’s lead is bananas, bonkers and plain insane”.
The commentator is definitely no economist and I would suggest he go an live in Japan and see how bonkers the place is – the first-class education, health and transport system, the very low unemployment, the housing availability, and more.
I decided not to continue reading.
Other commentators were from what I see complementary about my work – thank you.
Ridiculous commentary on the debt ceiling
Some journalists are more ridiculous than others as they strive for the headline that will signal impending doom and capture readers’ dollars.
This article – The US may now be closer than ever to defaulting on its debts (January 9, 2022) – is in that tradition and the writer is a serial offender.
The headline is meant to terrify.
The US (may) is closer to running out of money.
That would be a terrifying prospect, except if you think about it for a second and understand the reality the prospect becomes ludicrous.
We are approaching the perennial ‘debt ceiling’ pantomime that makes American policy makers look very stupid indeed as they strut around making all sorts of speeches and threats about turning off the tap and that sort of stuff.
Even progressives get roped into the charade and start Tweeting profusely about minting a trillion dollar coin, which in my view is equally ridiculous.
The US government has never defaulted and the debt limit has been in place since 1917.
But there is a curious disjuncture in the US system where the President and the Congress may not represent the same political influences, in part a consequence of the Presidential election/mid-term election cycle.
Often the Congress is taken over by the rival political force to the President as a statement of what Americans think of the first two years of that President’s performance.
That is the case now, when the Republicans won a majority in the House of Representatives and effectively matched the Democrats in the Senate (although 3 independents hold the balance in that chamber).
The question then is whether pressure to leverage the debt ceiling for spending cuts and/or tax increases (usually the former) are just legitimate expressions of the will of the people voiced through their majority representatives.
The tension arises because the ‘will’ was expressed for the President two years before the ‘will’ expressed for the Congress, and it is that dislocation that feeds this pantomime usually.
A curious aspect of the commentary around this issue is that pundits always claim that “A failure to lift the ceiling and a default on US government debt would be catastrophic”.
Apparently the corrupt rating agencies are predicting a major collapse in GDP, a 6 point or so rise in the unemployment rate and a massive drop in wealth should the ceiling remain at its current level.
However, they never question the economic damage that the spending cuts would create.
Further, the article cited above talks about “carnage in the US bond market and plunging the US dollar into meltdown”.
Come in central bank.
Its charter is to maintain financial stability and if there was a likelihood of such ‘carnage’ or ‘catastrophe’ that would undermine the financial system then the Federal Reserve would have to act.
What could it do?
Simply write off all the debt that it currently holds.
This time last week, the bank owned 5,457,751 million worth of US Treasury Securities.
Writing that off would render the current debt ceiling irrelevant.
Whatever the Federal Reserve might do, it is legally required to deal with financial instability and has all the currency power to do almost anything.
The recent shenanigans in the House in trying to elect a speaker tells the world how crazy these characters are.
But, the debt ceiling will be raised – as sure as day follows night or vice versa.
Music – A trip to Paris
This is what I have been listening to while working this morning.
Here is some post minimalist music to soothe the soul.
It is the very short (1:15) track – From the Rue Vilin – by one of my favourite Post Minimalist composers, Max Richter, which came out of his – Songs From Before – album in 2006.
This is a very beautiful piece.
As is the case with most post minimalist pieces, and Max Richter’s playing in general, it appears to be relatively simple in construction. But try playing it on piano – it is a deceptively difficult composition to get the timing just right.
Try to match the sounds of the composition with the actual street in the 20ème in Paris, which inspired the music.
Here is a short video about the street and how it has been used in films over the years.
It is one of my favourite areas in Paris with the Belleville Park at the top. But don’t be mislead by these old films. Most of the buildings are gone and have been replaced with modern apartment blocks and the soul of the place is gone.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.