Aust. low inflation & RBA meeting 01 May 2012

[Smurf1976]

I'd argue that inflation within the Australian economy has in recent years been much higher than the RBA acknowledges.

Looking at the CPI, those things which are either imported or are subject to technology or industry change have shown price falls that is true. But for things where it is simply a case of producing an unchanged product or service domestically, costs seem to be going up, up and up some more.

Anyone checked their electricity bill lately? Or gas? Or council rates? Insurance? Water? The cost of housing now versus a decade ago? General business expenses? Restaurant meals? Hair cuts? Bus fares? Hotel rooms?

Where, exactly, is this low inflation? I don't actually need a new TV every week.

 

[joea]

I sorry but are you actually saying you support their meddling?

Why would they be meddling, when it's their responsibility to ensure inflation stays in a band of 2 -3 %.
The RBA looks at a number(long list) of statistics, before they make the change.
Now that is where the meddling starts, (the word statistics.)
We even have two levels of inflation.(that's meddling.)

One of the item's is unemployment rate. ABS has it at 5.3% and Roy Morgan has it at slightly below 10%. Which is correct.? I am sure that the ABS in not correct, because Labor has altered the reference is what is unemployment.(that's meddling).
Australia has not got a problem with high inflation, it has a future problem with a recession with Labor in charge.

The economy of Australia will only improve with "Touch" control. By that I mean what they change must work in with other control measures.
Currently we have the RBA adjusting the rate figure, while we have "the worlds greatest treasurer" taxes us into a tail spin. That is not complementary control. (WOOPS, SORRY NOT TAXING, "REFORM")

Gillard and Swan do not know how to control our economy!! All Labor is proficient at is spending the tax payers money "willy nilly".

The "cogs" of a sound economy are the state economies. But those cogs are not all turning in the same direction. When they do, them we have to get them to their correct contributing speed. "THAT IS WHEN WE WILL HAVE A PROBLEM WITH INFLATION."

What my concern is that Labor may stumble on to the "right technique" before they can be tossed out of Government. Currently Labor's objective is not to control the economy, it is to tax everybody and every business to ensure it has a suitable "cash flow" to stay in government. i.e. Carbon tax.
Labor does not even talk about it's current deficit, Labor is talking about a surplus in the future.(hope, hope, hope it will come good. sorry Wayne not in your hands.)
joea

 

[young-gun]

Why would they be meddling, when it's their responsibility to ensure inflation stays in a band of 2 -3 %.
The RBA looks at a number(long list) of statistics, before they make the change.
Now that is where the meddling starts, (the word statistics.)
We even have two levels of inflation.(that's meddling.)

One of the item's is unemployment rate. ABS has it at 5.3% and Roy Morgan has it at slightly below 10%. Which is correct.? I am sure that the ABS in not correct, because Labor has altered the reference is what is unemployment.(that's meddling).
Australia has not got a problem with high inflation, it has a future problem with a recession with Labor in charge.

The economy of Australia will only improve with "Touch" control. By that I mean what they change must work in with other control measures.
Currently we have the RBA adjusting the rate figure, while we have "the worlds greatest treasurer" taxes us into a tail spin. That is not complementary control. (WOOPS, SORRY NOT TAXING, "REFORM")

Gillard and Swan do not know how to control our economy!! All Labor is proficient at is spending the tax payers money "willy nilly".

The "cogs" of a sound economy are the state economies. But those cogs are not all turning in the same direction. When they do, them we have to get them to their correct contributing speed. "THAT IS WHEN WE WILL HAVE A PROBLEM WITH INFLATION."

What my concern is that Labor may stumble on to the "right technique" before they can be tossed out of Government. Currently Labor's objective is not to control the economy, it is to tax everybody and every business to ensure it has a suitable "cash flow" to stay in government. i.e. Carbon tax.
Labor does not even talk about it's current deficit, Labor is talking about a surplus in the future.(hope, hope, hope it will come good. sorry Wayne not in your hands.)
joea

*sigh* this is not a labor bashing thread, please take your political bull**** somewhere else.

 

[prawn_86]

Where, exactly, is this low inflation? I don't actually need a new TV every week.

A lot of it comes from changing the CPI basket. As i understand it for example, 20 yrs ago say chicken breast was included in the basket, now it is chicken mince.

 

[young-gun]

They have aims, they have met them, it has been great for Australia, what would you do?

they achieve their aims in the short term absolutely. but every time they try to prevent the economy from doing what it wants to(mainly in regards to deflation) they try to prevent it, and alot of the time this is achieved through stimulus and rate cuts. this isn't natural, and as i stated, we are now experiencing the result of a bunch of people who think they can direct an economy towards non-stop growth over the past few decades. one HUGE global economic bubble, which is trying to deflate.

a few small to medium recessions that were fought off by real underlying growth and economic strength would have been far better than what we are staring down the barrel of now.

their efforts will be futile this time. and what they do with rates at this point in time is irrelevant imo, it will have minimal(if any) desired affect.

 

[young-gun]

I'd argue that inflation within the Australian economy has in recent years been much higher than the RBA acknowledges.

Looking at the CPI, those things which are either imported or are subject to technology or industry change have shown price falls that is true. But for things where it is simply a case of producing an unchanged product or service domestically, costs seem to be going up, up and up some more.

Anyone checked their electricity bill lately? Or gas? Or council rates? Insurance? Water? The cost of housing now versus a decade ago? General business expenses? Restaurant meals? Hair cuts? Bus fares? Hotel rooms?

Where, exactly, is this low inflation? I don't actually need a new TV every week.

this is where I do agree with joea, the methods of calculating inflation are laughable, in no way accurate, and virtually useless.

 

[moXJO]

will the banks even pass on the cuts?
I say drop the bomb .75% cut
Business is on the slide and its hitting the governments tax take

 

[Tyler Durden]

they achieve their aims in the short term absolutely. but every time they try to prevent the economy from doing what it wants to(mainly in regards to deflation) they try to prevent it, and alot of the time this is achieved through stimulus and rate cuts. this isn't natural, and as i stated, we are now experiencing the result of a bunch of people who think they can direct an economy towards non-stop growth over the past few decades. one HUGE global economic bubble, which is trying to deflate.

a few small to medium recessions that were fought off by real underlying growth and economic strength would have been far better than what we are staring down the barrel of now.

their efforts will be futile this time. and what they do with rates at this point in time is irrelevant imo, it will have minimal(if any) desired affect.

Sorry for asking a really basic question, but why does the RBA need to react to low inflation figures? I thought too high an inflation rate would be a problem, but the reverse?

 

[young-gun]

Sorry for asking a really basic question, but why does the RBA need to react to low inflation figures? I thought too high an inflation rate would be a problem, but the reverse?

http://www.bankofengland.co.uk/educ...tzero/mpframework/currentInflationTarget.aspx

 

[IFocus]

Lets face it the RBA have some minimal control over inflation / economy and governments virtually no control in the short term and there is endless research that shows this.

Over the long term both can really screw up the system as we can see the effects / results in the US / Europe and this is where the real damage is done if they get it wrong.

The levers that the RBA do have are really just a very blunt axe with a short handle IMHO.

 

[young-gun]

Lets face it the RBA have some minimal control over inflation / economy and governments virtually no control in the short term and there is endless research that shows this.

Over the long term both can really screw up the system as we can see the effects / results in the US / Europe and this is where the real damage is done if they get it wrong.

The levers that the RBA do have are really just a very blunt axe with a short handle IMHO.

+1, as you said its evident int he US. interest rates are at record lows, and will be for years, strangely enough we arent seeing it pick up? over 1 trillion of stimulus, barely kept their heads above water so far.

I think they are quite capable of staving of minor recessions and gluts of poor growth with BIG rate cuts, but whats happening is quite clearly out of everyones control now.

 

[McLovin]

a few small to medium recessions that were fought off by real underlying growth and economic strength would have been far better than what we are staring down the barrel of now.

Yes, I agree with you. That's the reason why for the last 25 years any recession has been fought by increasing debt. Recessions are good things, they flush out the ineffieciencies that build up in an economy.

The biggest issue with Australia now is the lack of productivity growth. We haven't had it in 10 years. I can't see the current batch in Canberra (on either side) getting stuck into any serious microeconomic reform though, sadly.

their efforts will be futile this time. and what they do with rates at this point in time is irrelevant imo, it will have minimal(if any) desired affect.

I agree. Most people still don't seem to understand the structural nature of what is happening wrt debt at the moment.

 

[jet328]

Instead of worrying about how much to cut by, the RBA board should just sack themselves and close the RBA.

If the government came out tomorrow and said they were going to set the prices of houses, cars or food most people would think it was completely ridiculous. How is money any different? What gives the RBA the impression they know more than everyone else?

The amount of money should be fixed and then let the markets work out the price themselves just like the used card market, forex market or the property market. If we are in a boom and every man and his dog is trying to load up with borrowed dough, interest rates will naturally rise due to supply and demand. The reverse in a recession.

Just look at the destruction central banks have created recently. Think back to 2000 and the tech wreck. The US needed a decent recession to clear the misallocation after the dot com bubble. Instead, the Fed dropped interest rates to get things 'going' again. We all know about the bubble and massive misallocation and malinvestemnt that one caused.

How many disasters can you see being created at the moment? Its hard to see the Fed's, ECB's, BOE & BOJ entry into the government bond market ending well.... Instead of dealing with the problem and taking the pain now, they are simply kicking the can down the road and creating an even bigger disaster for someone else.

Not to mention that their constant money printing has decreased the living standards of all Australians.
Take the same house that was worth in $20k in 1970 and now $1million today. A great 'investment' and I would agree at the individual level. But this system of constantly producing more and more dollars has turned us into and rewarded us for being speculators. Its just common sense, if money is being printed and land isn't. Consider now that the same house is still worth $20k in 2012. How many of us would been encouraged and rewarded for speculating on an existing property? Instead over those years its likely we would have put the investment in more productive things that increased Australia's productive capacity like railways, ports or businesses. This would have increased Australia's standard of living.

 

[Miss Hale]

Not entirely correct. Check what it has done to clearance rates in Melb. They aren't soaring back but certainly have steadied and have risen somewhat since the last 2 interest rate cuts. I understand this comment is likely to bring all those property bears out of their caves so this is all I have to say about the housing market recovery.

I am somewhat sceptical of clearance rates as they are supplied by estate agents and cannot be guaranteed as accurate. The survey referred to in the following article indicates that people were not positively influenced by the two previous drops in interest rates.

http://www.bigpondmoney.com.au/nati...er-caution-in-2012?cid=ZBP_MON_headline_1503A

 

[joea]

please take your political bull**** somewhere else.

Maybe you should pass this comment on to Wayne Swan the next time he bashes the banks to pass on the full rate decrease. (meddling) that was what my comment was related to.

joea

 

[Timmy]

Some interesting thoughts, certainly a rich tapestry.
Just to single out a few:

Reminds me of the epitaph on Spike Milligan's grave stone "I told you I was ill".

I had a chuckle at Marcus Padley's comments on ABC TV on Sunday morning that retail and manufacturing were burning down but the RBA decides to wait to see the CPI figure before deciding on a cut.

Spike Milligan quotes welcome anywhere! LOL
Retail & manufacturing would seem to benefit. To the extent that a lower interest rate will impact on the exchange rate at the margin it will be a boost to an export businesses and import-competing ones. I am surprised we haven't heard more from the powerful farmer/rural lobby about the benefit (or otherwise?) of cutting rates?

They'll cut but I don't think it will make a difference. People aren't paying down their debt and saving more because of a few measley basis points. By historical standards rates are already low. The usual talking heads will discuss how it adds an extra $xx/week to the family budget but unlike in the past, I doubt this is going to go toward buying a new big screen TV.

McLovin, I read your comments fairly widely (correct me if I was wrong to), but it seems to me that if a person ends up with a few extra dollars from a rate cut they will either spend them or save them (or some combination of the two), I don't follow you when you say neither will occur?

Has anyone seen any research that tries to work out how much of the impact of a rate change arises from households vs corporates? I understand why Today Tonight (is that still running???) might like to quote how much a struggling lower-middle class family will be effected on their mortgage payments, but is that significant at the macro level relative to the impact on corporates who often have their loans set at a base rate + margin?

Tks Doc., surprised there wasn't more comment on how a lower cost of funding could be of benefit to business.

I'd argue that inflation within the Australian economy has in recent years been much higher than the RBA acknowledges.

Looking at the CPI, those things which are either imported or are subject to technology or industry change have shown price falls that is true. But for things where it is simply a case of producing an unchanged product or service domestically, costs seem to be going up, up and up some more.

Anyone checked their electricity bill lately? Or gas? Or council rates? Insurance? Water? The cost of housing now versus a decade ago? General business expenses? Restaurant meals? Hair cuts? Bus fares? Hotel rooms?

Where, exactly, is this low inflation? I don't actually need a new TV every week.

Nice point Smurf. When I asked:

With such a low measure of inflation, what's to stop an RBA rate cut?

it wasn't rhetorical, so appreciate what you have said. Valid point indeed. The RBA have discussed the difference in inflation between tradeable and non-tradeable goods, which I think is sort of what you are referring to here. Difficult issue for them to wrestle with.

 

[young-gun]

Maybe you should pass this comment on to Wayne Swan the next time he bashes the banks to pass on the full rate decrease. (meddling) that was what my comment was related to.

joea

Even if I was given the chance I wouldn't waste my time or breath

 

[McLovin]

McLovin, I read your comments fairly widely (correct me if I was wrong to), but it seems to me that if a person ends up with a few extra dollars from a rate cut they will either spend them or save them (or some combination of the two), I don't follow you when you say neither will occur?

I think you may have misinterpreted what I said, probably because I worded it wrong.

People aren't paying down their debt and saving more because of a few measley basis points.

I meant people are paying down their debt and saving more but not because interest rates are high, just because they are averse to debt. A fall in interest rates of 25-50bp won't change that behaviour, IMO.

 

[Timmy]

I think you may have misinterpreted what I said, probably because I worded it wrong.



I meant people are paying down their debt and saving more but not because interest rates are high, just because they are averse to debt. A fall in interest rates of 25-50bp won't change that behaviour, IMO.

Yes, I did misinterpret - tks for that.

 

[doctorj]

Tks Doc., surprised there wasn't more comment on how a lower cost of funding could be of benefit to business.

I guess because most people have houses and few have businesses. Even if someone owns a business, on average only 15-20% of an SME's funding tends to be in the form of bank debt, so its likely to be a minimal impact on that front too...

It will impact the larger businesses, but that's probably outside anything that's easily and directly observable.