Inflation

[mullokintyre]

If you do a quick google search using the words "government blames business profits for inflation increase" you will find a slurry of articles, particularly at the ABC news reporting that the ACTU, the treasurer, Leif Van Olsen (who?) all suggested that it was excessive business profits that drove inflation up.
I note in todays comments about the kick up in inflation last month was largely attributable to big increases in fuel costs.
From Evil Murdoch press

ABS head of labour prices statistics Michelle Marquardt said that a significant contributor to the increase in the annual movement in April was automotive fuel.

“Automotive fuel prices were 9.5 per cent higher this month than they were in April 2022 when prices fell following the 22 cents per litre cut in the fuel excise introduced on 30 March 2022,” she said.

“The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.”

I wonder then if the same commentators will be castigating the government for their contribution to inflation?

Mick

 

[JohnDe]

"It will require a wake-up call from both politicians and the Reserve Bank to change the direction.​

​

And for the Reserve Bank that won’t be easy because inflation is well and truly embedded in the economy and, like the US, is currently being driven by the impact of higher wages growth on services costs and prices. That wages pressure will continue until it's broken by a severe downturn."​

Long-awaited acceleration in the downturn is now fully underway

The dam has burst. Suddenly, in the last two weeks, large areas of the retail trade have turned down sharply.

In some areas, the decline is between 15 and 20 per cent. Combine that with the latest catastrophic fall in building approvals, and the long-awaited acceleration in the downturn is now fully underway.

In the last few months, there have been small falls in the food sector, but inflation masked larger but manageable falls in other retail areas, including appliances and clothing.

As set out below, a series of forces that have combined to accelerate those downturns, and those forces are likely to continue for some time.

It will require a wake-up call from both politicians and the Reserve Bank to change the direction.

And for the Reserve Bank that won’t be easy because inflation is well and truly embedded in the economy and, like the US, is currently being driven by the impact of higher wages growth on services costs and prices. That wages pressure will continue until it's broken by a severe downturn.

Meanwhile, many service companies are still able to raise prices — efficiency becomes secondary. But the game will change in coming months.

I was first alerted to the downturn acceleration by people in the transport industry. Then I checked with the network of floor-people.

These are the same people who three years ago told me sales were booming when the official figures said there was a slump. The Reserve Bank ignored the comments of me and others at the time and didn’t get outside their Martin Place bunker. They relied on out of date official figures, leaving rates too low for too long.

Now, because the 2023 downturn acceleration has occurred in the last two weeks of May, the fall may not be seen in official figures for another month or so.

But the ANZ-Roy Morgan Consumer Confidence has now spent thirteen straight weeks below the 80 mark — a clear warning of trouble ahead.

The last time the consumer confidence index spent at least thirteen weeks under 80 was during the 1990-91 recession — the recession which then treasurer, Paul Keating, described as “the recession we had to have”.

The May 2023 retail downturn was triggered by the combination of events:

• Adjusting for inflation, Australian wages have fallen 3.2 per cent over the last year and 7.2 per cent since their peak. There have been few times in our history where there has been such a big fall in real wages. Middle Australia is hurting.

• In May, a vast number of heavily mortgaged householders actually received their interest bill as they converted from fixed low rate borrowing terms to today’s rates. They knew it was coming but receipt was a deep shock.

• There have been volleys of misleading statements about what politicians are going to do to reduce energy prices, but that was all nonsense. Their disastrous policies over the last two years are exploding power bills which really hit middle income Australia. Any relief was delivered to the lower income areas, not middle Australia.

• The Reserve Bank further increased interest rates in May, and there was speculation of more to come. Whether the speculation was right or wrong was irrelevant. It increased fear.

• The fall in consumer demand has been delayed by the unexpected stabilisation and even increase in house prices despite higher interest rates. Meanwhile, potential buyers of new houses are too scared of builder failures to place orders, so the shortages will continue.

• The housing shortage means that renters are often being squeezed in a more brutal way than those with mortgages. Recently, the Victorian government decided that renters should be given an extra kick with a “rent tax” levied via a landlord tax. And an “educational tax” was levied on middle income Victorians (by taxing independent schools) who want to give their children a better education. Both those measures will increase inflation in Victoria.

• When the federal budget came out, a series of low-income people were given aid. But those in middle Australia, the wealth creators, were given nothing and told to suffer because “you are affluent”. It was a cruel blow.

• Australians coming to the supermarkets are met with regular price rises, which are being offset by people buying cheaper goods. The trend towards buying lower priced goods is spreading in all retail markets.

• During Covid-19, people did not travel overseas and spent much of that money locally, including home improvements. Now among the affluent, that “local” spending money is being outlaid on overseas travel.

• At the moment there is a shortage of skills, but as workers in retailers and their suppliers see sales fall sharply, they know that the survival of their enterprise will depend on labour shedding.

Many under mortgage stress are meeting their repayments via the gig economy, often in the retail sector, so are very vulnerable to this downturn. And those that study the Canberra political manoeuvrings know that the government wants to hit them harder by restricting the gig economy to make it more difficult to supplement extra income.

At this stage because the fall has been sudden and only for about two weeks, naturally retailers want more time before pronouncing a downturn. But the one thing the budget got right was forecasting a sharp fall in the Australian economy in 2023-24, despite strong mining and agriculture.

It has started a little earlier than expected.

The stock market has been driven by interest rate trends, so the accelerated downturn is good news because it will curb rate rises. But in terms of the looming profit blows for many enterprises, the market has ignored the budget predictions and is not priced for this downturn.

ROBERT GOTTLIEBSEN BUSINESS COLUMNIST

 

[Knobby22]

"It will require a wake-up call from both politicians and the Reserve Bank to change the direction.​

​

And for the Reserve Bank that won’t be easy because inflation is well and truly embedded in the economy and, like the US, is currently being driven by the impact of higher wages growth on services costs and prices. That wages pressure will continue until it's broken by a severe downturn."​

The monthly figure was 0.3% which is in the target range. A lot less than the annual figure and almost within t he Reserve Bank target.
This monthly figure is missing a lot of items and isn't accurate though so can't get carried away.
$A fell so big boys thinking another interest rate rise is unlikely.

 

[waterbottle]

The monthly figure was 0.3% which is in the target range. A lot less than the annual figure and almost within t he Reserve Bank target.
This monthly figure is missing a lot of items and isn't accurate though so can't get carried away.
$A fell so big boys thinking another interest rate rise is unlikely.

Dunno if using the AUD to interpret market opinion is a good idea. Other big piece of news today was that China factory activity is shitting itself, now at Oct 2022 levels - so much for the reopening narrative - which Australia is so dependent on. Methinks that is the more likely cause for the fall.

 

[over9k]

Dunno if using the AUD to interpret market opinion is a good idea. Other big piece of news today was that China factory activity is shitting itself, now at Oct 2022 levels - so much for the reopening narrative - which Australia is so dependent on. Methinks that is the more likely cause for the fall.

China's done for which is why I'm not bullish on australia going forward at all.

About the only thing I think will continue to pump will be house prices (in some areas) and we all know why that is.

 

[waterbottle]

View attachment 157555

China's done for which is why I'm not bullish on australia going forward at all.

About the only thing I think will continue to pump will be house prices (in some areas) and we all know why that is.

I would think China sinking is due to the rest of the world going down too, rather than anything specifically China related.

 

[waterbottle]

The Fed mouthpiece reporting no hike for June, possibly switching to a hike every other month - just like the RBA....

Fed Prepares to Skip June Rate Rise but Hike Later https://www.wsj.com/articles/fed-official-says-rate-pause-doesnt-signal-end-to-hikes-758041e5

 

[over9k]

I would think China sinking is due to the rest of the world going down too, rather than anything specifically China related.

Nah it's the complete opposite bottle - china's going to be the worst of all. They have all kinds of problems almost entirely unique to them along with having some of the worst cases of the same problems that everyone else do. Demographic collapse, food insecurity, energy insecurity, massive gender imbalance due to millions upon millions of girls being aborted during the one child policy, massively overcredited, corruption, their neighbours all hating them, capital flight, you name it.

They'd be f***ed even if the rest of us were going to be fine (and we're not).

 

[over9k]

View attachment 157511

Let's see where we end up after today's data.

After:

 

[divs4ever]

I would think China sinking is due to the rest of the world going down too, rather than anything specifically China related.

China needed to consolidate on previous growth , relieve bottlenecks , the perchance a lot of the West ( the now declared enemy ) is struggling at the same time only means less pressure on China

am still trying to bias my new cash towards India ( rather than China ) because i see better growth in India in the near future

 

[Junior]

The monthly figure was 0.3% which is in the target range. A lot less than the annual figure and almost within t he Reserve Bank target.
This monthly figure is missing a lot of items and isn't accurate though so can't get carried away.
$A fell so big boys thinking another interest rate rise is unlikely.

hi Knobby, I'm trying to track down where this 0.3% figure comes from. I know Kohler quoted it on the news, but I can't see it in the ABS data.

 

[mullokintyre]

hi Knobby, I'm trying to track down where this 0.3% figure comes from. I know Kohler quoted it on the news, but I can't see it in the ABS data.

I think if you subtract the yearly inflation rate as at end of last month they reported from the yearly rate at the end of this latest month, it comes to 0.3%.
Mick

 

[waterbottle]

Nah it's the complete opposite bottle - china's going to be the worst of all. They have all kinds of problems almost entirely unique to them along with having some of the worst cases of the same problems that everyone else do. Demographic collapse, food insecurity, energy insecurity, massive gender imbalance due to millions upon millions of girls being aborted during the one child policy, massively overcredited, corruption, their neighbours all hating them, capital flight, you name it.

They'd be f***ed even if the rest of us were going to be fine (and we're not).

True, but they share many of these issues with the West - energy and supply chain insecurities, worsening demographics, over reliance on credit. Although on balance the West is probably better positioned to overcome these challenges given favourable immigration conditions and multilateral efforts to improve access to resources/goods/labour.
All that means, IMO, is that China will have to either play nice and co operate, play rough and risk war (we know they're watching russia/ukraine) or do nothing (and let nature take its course). Me thinks they will play nice.

 

[over9k]

True, but they share many of these issues with the West - energy and supply chain insecurities, worsening demographics, over reliance on credit. Although on balance the West is probably better positioned to overcome these challenges given favourable immigration conditions and multilateral efforts to improve access to resources/goods/labour.
All that means, IMO, is that China will have to either play nice and co operate, play rough and risk war (we know they're watching russia/ukraine) or do nothing (and let nature take its course). Me thinks they will play nice.

Even if they do, their internal problems are still insurmountable. Even if they weren't on the sh!tlist of basically everyone, they're credited up to their eyeballs, heading into demographic winter, the list just goes on and on and on and on.

Meanwhile:




India's the economic miracle (and a much longer term one) of the next 30 years.

 

[sptrawler]

China needs the World buying it's sht, just as much as the World needs China to keep making it, ATM there isn't any other options.

The China issue, is all about high level chip manufacturing technology, as was said at the initial outbreak of unrest with Taiwan.
China has to play nice until it can develop its own high level chip manufacturing base, which they are finding harder than they thought it would be IMO.
Inflation ain't going to stop rising in Australia until the Govt stops throwing money at people and that isn't happening any time soon, $900 electricity subsidy anyone? All this money is just pumping the inflation and the RBA only has one way of stopping it, so I'm readjusting my term deposit every few months.

More than a million Australians on welfare will get some hip pocket relief after the opposition decided to back the government's JobSeeker boost.
In this year's federal budget the government included a $40 fortnightly increase to JobSeeker and youth allowance payments.
The extra $92.10 a fortnight received by people over 60 would also be offered to people over 55.
Reserve Bank of Australia governor Philip Lowe has warned federal Labor MPs that generous wage rises they were backing would make inflation worse unless they were accompanied by increases in productivity, in what sources said was a series of tense exchanges this week.6 days ago

RBA governor warns Labor over wages

Philip Lowe has warned government MPs that generous wage rises without productivity increases would make the inflation problem worse.

www.afr.com

From the article:
Sources familiar with events said some Labor members of the committee had effectively accused Dr Lowe of demonising wage rises, when he stated that increases above 2 per cent to 3 per cent without a corresponding offset via a productivity increase would be inflationary.

And that, he said, meant the RBA would have to resort to the only “blunt instrument” at its disposal, which was to keep increasing interest rates.

“He repeated himself again and again because they kept coming at him, they were very persistent,” said a source.
The questioning then changed tack when the MPs – led by West Australian Tania Lawrence and Victorian Sam Rae – put to Dr Lowe that low-paid workers, who were the most affected by the interest rate rises so far, were therefore in need of a pay rise.

Dr Lowe responded to the effect of “there is nothing I can do about that”, and restated the bank’s statutory duty was to push down inflation using the blunt instrument of rate rises.

“He was trying to say that his job is not to always deliver good news and there is no way out of here that doesn’t have an impact,” said a source.
One of the Albanese government’s core promises was to restore real wages growth and, while stopping short of advocating specific figures, it has backed a series of wage claims made since the election a year ago.

This includes last year’s decision by the Fair Work Commission to give aged care workers a 15 per cent pay rise from July 1, at a cost to the budget of $14.1 billion. It has also given in-principle support to an application for a 7 per cent increase to the minimum wage, saying the nation’s lowest paid should not go backwards.

The government argued an inflation-linked wage rise for those on the minimum wage would not be unsustainable or inflationary, and would only cause problems if pursued by the broader workforce.
Dr Lowe told the MPs he did not care what lifted productivity, be it technology or otherwise, but that it needed to lift alongside wages.

Labour productivity, represented by the level of output produced per hour of work, is the same today as it was three years ago, after falling 4.2 per cent since its peak in March last year.

Higher productivity growth allows the economy to expand at a faster pace without generating inflation, and is also the dominant driver of real wages growth over the long term.

 

[over9k]

China needs the World buying it's sht, just as much as the World needs China to keep making it, ATM there isn't any other options.

The China issue, is all about high level chip manufacturing technology, as was said at the initial outbreak of unrest with Taiwan.
China has to play nice until it can develop its own high level chip manufacturing base, which they are finding harder than they thought it would be IMO.
Inflation ain't going to stop rising until the Govt stops throwing money at people and that isn't happening any time soon, $900 electricity subsidy anyone?

The reshoring of a lot (like a LOT) of stuff was set in motion quite some time ago.

Inflation is a largely supply side issue. Not to say the rest of the stuff isn't contributing, but it's lack of supply that is the real long term/structural driver.

 

[sptrawler]

The reshoring of a lot (like a LOT) of stuff was set in motion quite some time ago.

Inflation is a largely supply side issue. Not to say the rest of the stuff isn't contributing, but it's lack of supply that is the real long term/structural driver.

Up to a point, supply side issue resolve when consumers stop buying.
We are bringing very little manufacturing or processing back to Australia, it just doesn't make sense unless it is a critical item or process.

 

[moXJO]

View attachment 157555

China's done for which is why I'm not bullish on australia going forward at all.

Wasn't Modi here the other week?
I think you underestimate the governments ar5e kissing skills to latch onto the next play.

 

[over9k]

You'll have to spell that one out for me moxy, you've lost me completely.

 

[moXJO]

You'll have to spell that one out for me moxy, you've lost me completely.

We are already adjusting to the India story imo. Growing middle class will hopefully split the load of trade between India and China.

While both sides are still trying to work out how to benefit from the trade and its still very early days. It's going to be a lot easier on the communication end dealing with India.
Maybe not so much on the red tape and political spectrum though.

Still it's a bigger opportunity for us.