Inflation

[againsthegrain]

"Around one million households will have to drastically cut back their spending due higher interest rates and soaring inflation."

I don't think cancelling net flix and not getting a new tv every 6 months is drastic ?‍

 

[JohnDe]

then the RBA Governor should seek mental health evaluation ( maybe they can diagnose him )

 

[divs4ever]

I don't think cancelling net flix and not getting a new tv every 6 months is drastic ?‍

have never subscribed to NetFlix nor bought a new TV in my life and since several economies rely on increased buying ( preferably on credit ) maybe the situation is worse than it seems

 

[CityIndex]

How's this for more (un)certainty

Seems like the RBA is giving themselves room to go either way, pretty much echoing last year's commentary of not having a set rate hike path and using incoming data to decide.

 

[qldfrog]

I don't think cancelling net flix and not getting a new tv every 6 months is drastic ?‍

I do not think cancelling Netflix 120$ a year will change much, as for even a new tv every 2y that's what $600 a year so a grand total of $720/ $2 a day saving
That's roughly one RBA interest increase on a 200k loan
I let you judge what is the reasonable price one should buy a place..but I think a 200k loan would be VERY minimal..how do you want to build a big deposit when your IR are easily 5% below inflation..and taxed
During that time the insurances costs, council rates electricity bills etc etc are all above 10% up a year..as for your salary after taxes...nope
I have no mortgage, I also think the RBA rates should be above inflation, but I do not dismiss the pain suffered.
I consider myself privileged.

 

[qldfrog]

I don't think cancelling net flix and not getting a new tv every 6 months is drastic ?‍

PS.my tirade is not personal, but these types of opinions and the comments on toasted avos etc are amplified by the click bait media and fracture the society, which will then let us rot as privileged boomers, taxed to oblivion and end in soiled beddings starved and tied to beds in our 90s..
Some genuine hardworking people are suffering

 

[waterbottle]

ECB now entertaining rates above 3.5%....

 

[divs4ever]

ECB now entertaining rates above 3.5%....

maybe the ECB should stop entertaining , and just get cracking on fiscally responsible budgeting

 

[noirua]

US consumer price inflation slowed in January, though not by as much as expected.

Annually, inflation was 6.4%, easing slightly from 6.5% in December. The figure came above market consensus, as cited by FXStreet, which expected inflation to slow to 6.2%.

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UK inflation figures on an annual basis, the consumer price index eased to 10.1% in January from 10.5% in December.

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When will inflation peak? The Reserve Bank of Australia, or the RBA, says inflation is forecast to peak at around 8% in 2022 before dropping in 2023. It is currently at 7.8%.

The Consumer Price Index for Australia is 130.8 for the month of December 2022. The inflation rate year over year is 7.8% (compared to 7.3% for the previous quarter). Inflation from September 2022 to December 2022 was 1.9%.

 

[Smurf1976]

I do not think cancelling Netflix 120$ a year will change much, as for even a new tv every 2y that's what $600 a year so a grand total of $720/ $2 a day saving

For many the only reason to have fixed internet at home is entertainment given that mobile data would be more than adequate for serious uses not involving video streaming. There goes another ~$1100 a year which brings the total to $1800.

It's not just watching TV though.

Eating out is another one and many seem to it 2 or 3 times a week, every week. Suffice to say I've no idea how they find the time let alone the money for that but it's a thing, people do it.

Then there's gambling and all manner of recreational drugs. Huge amount of money gets spent there.

Then there's cars. Stand outside a school at afternoon pickup time and you could be excused for thinking you'd gone to a motor show. Versus "back in my day" we rode home on what was at the time a ~30 year old bus.

And of course renovations. Some are definitely needed but a lot of perfectly good stuff is scrapped and sent to the dump for the sake of it. Gotta have a new kitchen every few years, right?

Note that I'm observing not preaching there. I just went to both Melbourne and Sydney for no purpose other than attending a concert so I'm not saying people are doing the wrong thing, just observing that there's a huge amount of consumer spending that could hardly be considered essential. Someone might genuinely be struggling but clearly the majority aren't. Consumers as a whole aren't out of money yet.

 

[Telamelo]

ECB now entertaining rates above 3.5%....

and reminder that current 'global inflation dilemma' is all Putin's fault because of Ukraine conflict fuelling inflation we are told!

 

[Smurf1976]

Just my opinion but I think overall conditions are ripe for an overall economic cycle top somewhere around now.

Central banks are raising interest rates.

There's been an energy shock.

Public and political debate is overwhelmingly focused on social and other non-economic issues.

Financial market valuations and consumer spending seem oblivious to the risks.

Individually those points could be easily dismissed but collectively they seem all too familiar with previous cycle tops.

 

[JohnDe]

and reminder that current 'global inflation dilemma' is all Putin's fault because of Ukraine conflict fuelling inflation we are told!

I haven't read that one.

Care to post some news links, so I can catch up.

Most of what I read suggest the cause of current inflation problems stem from Covid-19, global excess cash handouts from governments and extremely low interest rates, supply chain problems, China lock downs and industry stoppages.... Putin was way down the list.

 

[mullokintyre]

I haven't read that one.

Perhaps you need to read more widely.
heres a couple of references.
Biden blames Putin invasion for Inflation
Forbes says Invasion causing inflation
WSJ says Invasion fanning flames of inflation
Even The RBA had a go .ABC News
Mick

 

[waterbottle]

Australian unemployment rate surprised upwards to 3.7%

 

[UMike]

LOL I thought Dear John was joking.

 

[CityIndex]

Australian unemployment rate surprised upwards to 3.7%

The jobs market is starting to show signs of slowing, and given how the RBA had been banking on strong employment to engineer a "soft landing", it will be interesting to see how this impact's their rate hike plans.

Governor Lowe speaks again tomorrow, should be worth watching to see how he responds.

 

[moXJO]

I haven't read that one.

Care to post some news links, so I can catch up.

Most of what I read suggest the cause of current inflation problems stem from Covid-19, global excess cash handouts from governments and extremely low interest rates, supply chain problems, China lock downs and industry stoppages.... Putin was way down the list.

Type this into any search engine

russia the cause of inflation

 

[JohnDe]

Perhaps you need to read more widely.
heres a couple of references.
Biden blames Putin invasion for Inflation
Forbes says Invasion causing inflation
WSJ says Invasion fanning flames of inflation
Even The RBA had a go .ABC News
Mick

My comment was in regard to "reminder that current 'global inflation dilemma' is all Putin's fault because of Ukraine conflict fuelling inflation"

Thank you, Mick, for your news links but they only confirm my gathered information; "current inflation problems stem from Covid-19, global excess cash handouts from governments and extremely low interest rates, supply chain problems, China lock downs and industry stoppages.... Putin was way down the list."

Biden blames inflation on Putin’s invasion of Ukraine 'for the latest burst of inflation'.​

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Forbes says Invasion causing inflation The Reasons Why A War In Ukraine Will Make Inflation Worse​

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WSJ says Invasion fanning flames of inflation History may be about to repeat as Russia’s invasion of Ukraine tilts the balance of global political and economic forces toward higher inflation.​

Nothing there tells us that 'global inflation dilemma' is all Putin's fault'.

If there was no global inflation to start with when Russia invaded the Ukraine and suddenly inflation hit the worlds, there would be reason to put all blame on Putin and Russia. But it wasn't, inflation was already in when Russia invaded, and I have not read any professional commentary saying otherwise.

"the war was not the cause of high inflation"

 

[JohnDe]

Type this into any search engine

russia the cause of inflation

Good point. I just did that and got this -

High inflation is bad news for everybody. ​

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Understanding the cause of the current inflation is therefore, very important. Mis-understanding its causes is risky, as we may enact the wrong policies in response, exacerbating the problem. The stakes are high.​

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The argument that the current inflation is caused by Russia’s leader, Vladimir Putin, goes something like this: Russia’s unprovoked invasion of Ukraine is the primary cause of high inflation today. Both countries are major commodity exporters, especially so in the case of energy and food. As the war continues to interrupt the supply of these commodities to the global market, prices have been pushed up and will remain elevated until the war ends. Given that this war is, ultimately, the responsibility of one man (Vladimir Putin) and his obscene ideology, and the war has caused the inflation, then ultimately this inflation is his fault. If only he hadn’t invaded Ukraine, inflation would still be low and stable, and we could continue on with our lives. It follows therefore that, if the war ends, inflation will also come down significantly and, potentially, stop being a problem.​

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This narrative is wrong, plain and simple. The Biden administration’s un-ashamed parroting of this narrative for political gain is, to be kind, outrageous and symptomatic of a presidency that has lurched from one crisis to another, without ever taking responsibility. But this is a discussion for another day.​

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The task at hand is to understand where currently high levels of inflation came from. Was it Putin’s fault? Well, let’s look at the numbers. Inflation levels had remained at or very close to 1-2% in the US and Europe for nigh on 30 years leading up to the 2020 pandemic. Many economists, political leaders, and leaders within central banks, concluded that low inflation was now a permanent fixture of the modern economy.​

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But this started to change in 2021. US inflation rates jumped above 4% in April 2021, the highest reading since 2008. And inflation kept rising, well above 5% in July 2021, north of 6% by October, hitting 7% by the end of the year (the highest readings in 30 years).​

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Russia’s full-scale invasion of Ukraine started February 24th 2022.​

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Inflation was already hitting its highest levels in decades before the invasion started. Yes, inflation rates have continued to climb since, moving above 9% in June this year. And, yes, higher food and energy prices as a result of the war are almost certainly a contributory factor to current inflation levels.​

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But, and this is the critical point, the war was not the cause of high inflation. We already had a serious and growing inflation problem before the war started. All the war has done is exacerbate a pre-existing inflation. The war ending, therefore, doesn’t necessarily solve the underlying inflation problem.​

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What, then, did cause this inflation cycle, the worst since the 1970-1980s inflation.​

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In response to the pandemic the world’s central banks printed a lot of money. Money printing, historically at least, has been inflationary. Close to 30% of the dollars in circulation today in the global financial system were printed in the last two years. It’s no coincidence, we would argue, that many of the 2 year inflation numbers for assets like housing, or even personal consumption goods like cars or eating out, have seen prices rise by about 30%. All of that new money had to find somewhere to go.​

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Then, with the economic recovery from the COVID pandemic already well underway last year, labour markets in the developed world very quickly moved close to full employment. Labour shortages were already becoming a problem in some sectors of the economy early last year. Into this hot economy with limited capacity to increase supply, the US government decided to pump a $1.9 trillion fiscal stimulus (funded with debt and money printing by the US central bank). Further pumping up an already hot economy at close to full capacity.​

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The major central banks, led by the US Federal Reserve, were too late in their response to this. The usual playbook for reducing inflation in a hot economy is to raise interest rates. The timing of this is critical, wait too long and inflation can get out of control as it starts to change expectations of economic participants. If people start to think inflation will remain high, they will demand higher wages and change spending habits, thus entrenching inflation for longer and creating an ‘inflation cycle’. The best answer to this is for central banks to raise interest rates early.​

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Unfortunately the central banks were late to the party, again, led by the Fed, who kept rates at their lowest levels in history through 2021, effectively continuing to stimulate the economy via monetary policy despite the fastest rise in inflation in the US in more than 40 years. This complacent response is now costing us.​

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Over-stimulus into a hot economy, followed by a slow response from central banks, was probably the cause of the 1970s inflation cycle too.​

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We always try and end these messages with an optimistic note, but sadly in this case, the....​