Inflation

[divs4ever]

Sorry, but that sounds like the typical socialist lack of understanding. Grouping all employers and businesses together, and saying that all workers have done their share.

There are many reasons for high inflation, some of it has to do with consumer FOMO, buying houses at ever increasing prices, going out to eat and paying whatever, going on holidays and out spending previous years, smoking, drinking, owning multiple vehicles, a pool, running an A/C for extended periods, a boat, and so on.

We all have choices.

yes excessive greed is a contributing factor , and substance abuse/addictions

the annoying part ( to me ) is the frugal are expected the rescue the extravagant ( regardless of their income bracket )

 

[Value Hunter]

Sorry, but that sounds like the typical socialist lack of understanding. Grouping all employers and businesses together, and saying that all workers have done their share.

There are many reasons for high inflation, some of it has to do with consumer FOMO, buying houses at ever increasing prices, going out to eat and paying whatever, going on holidays and out spending previous years, smoking, drinking, owning multiple vehicles, a pool, running an A/C for extended periods, a boat, and so on.

We all have choices.

Obviously every individual is an individual but were are talking about the aggregate behavior and the aggregate effect of groups at a macro level not what individuals are doing.

Besides robust consumer demand is not a bad thing. We need to stop demonizing consumers and start figuring out ways to increase production of goods and services to meet demand. First if we cut wasteful government expenditure thats more money in the economy that can be used productively for business expansion to increase supply of goods and services and ditto if we cut red tape and taxes that will make business expansion easier. Also if you want consumers to spend less high real interest rates would make saving money attractive vs spending. I can guarantee you if inflation stays where it is now but interest rates on savings accounts went to 10% you would see a lot more people choosing to save money rather than spend it. Foregone consumption should have an adequate reward. Over-consumption is partly a result of financial repression.

I think Estonia has a good corporate tax system with a relatively moderate flat corporate tax and an offset for reinvested earnings so in essence only dividends are taxed (and I think also realized capital gains for individuals) but reinvested profits are not taxed. Such a tax system would encourage reinvestment of earnings and business expansion thus increasing the supply of goods and services.

 

[Value Collector]

In terms of consumers demanding higher wages it comes down to the question of how do you spread the pain/burden of inflation through society fairly? Should businesses swallow the cost increase and shrink the profit margins (by not passing cost increases onto consumers)? Should workers forego pay rises? Should landlords forego increasing their rents? Should the government forego the increase taxes from bracket creep and land price inflation By increasing the tax thresholds?

I would suggest that consumers/wage earners are already doing more than their fair share by getting pay increases below the rate of inflation, meanwhile there is ample evidence to show that business are using inflation as cover to increase prices more than necessary and bolster their profits. I can delve more into that if necessary.

Again as I stated in my original post if the inflation is just caused by monetary inflation it will pretty much automatically be spread through society pretty evenly, But if it is caused by supply chain disruptions, if will be spread among those that use those supply chains, which in some instances like Oil is pretty much everyone anyway.

It pretty much has to be that way, because a large part of the action required to fix the problem temporally needs to comes from the consumers, especially in the early stages.

 

[divs4ever]

but in several nations consumers drive the economy , one might say 'ride the consumer's back

what gets really scary is when a large portion of consumers extensively use debt facilities ( not just house and car loans )

 

[Value Hunter]

Again as I stated in my original post if the inflation is just caused by monetary inflation it will pretty much automatically be spread through society pretty evenly, But if it is caused by supply chain disruptions, if will be spread among those that use those supply chains, which in some instances like Oil is pretty much everyone anyway.

It pretty much has to be that way, because a large part of the action required to fix the problem temporally needs to comes from the consumers, especially in the early stages.

Wrong. Monetary inflation does not always spread through society evenly. In fact the Cantillon effect dictates that those closest to the money spigot benefit from inflation which then ripples out with wage earners and fixed income investors generally being the losers. Inflation tends to increase wealth inequality.

Even John Maynard Keynes who I am generally loathe to agree with pointed out the uneven effect of inflation and how it affects different classes in society.

"He takes an even tougher attitude in his
Economic Consequences of the Peace (1919), con-
demning inflation in the harshest possible terms.
He says :

Lenin is said to have declared that the best way to
destroy the capitalist system was to debauch the
currency. By a continuing process of inflation,
governments can confiscate, secretly and unob-
served, an important part of the wealth of their
citizens. By this method they not only confiscate,
but they confiscate arbitrarily; and, while the
process impoverishes many, it actually enriches
some [6; pp. 148-9].
He agrees with Lenin that inflation has the potenti-
ality of destroying the basis of capitalist society.
Lenin was certainly right. There is no subtler, no
surer means of overturning the existing basis of
society than to debauch the currency. The process
engages all the hidden forces of economic law on
the side of destruction, and does it in a manner
which not one man in a million is able to diagnose
[6; p. 149].
He then proceeds to specify at least four ways that
rapid inflation works to weaken the social fabric and
to undermine the foundations of the capitalist free-
market system. First, unforeseen inflation, he says,
results in a capricious and totally “arbitrary rear-
rangement of riches” that violates the principles of
distributive justice. B


Inflation is hugely damaging. You are talking about a hypothetical world in which there is a table of poker players playing poker and halfway through the game the wealthy host of the party arrives and gives each player $100 at the same time to add to their chip/betting stash while playing. Real life does not work this way. Inflation is always uneven and people do not receive the newly printed/borrowed money in equal amounts.

Its absurd when the elites tell consumers that we are the ones causing inflation. Its gaslighting in fact. These evil elites who are trying to control the whole world shut down the world because of a ******* flu i.e. Covid which was completely non-deadly and most certainly not a pandemic (just government disinformation). Which by the way Covid virus was caused by the Chinese and U.S. governments

So they shut down the world which reduced production of goods and services meanwhile many people were sitting and producing far less than before or in some cases nothing at the same time the governments printed huge amounts of money which consumers then spent while they were not producing. Both the shutting down of production (they should have just ignored Covid and let it run its course) and boosting the money supply at the same time spiked inflation. Then they turn around and tell consumers the inflation is our fault as if we are the ones who decided to stop producing or to print trillions of dollars.

 

[Smurf1976]

A) wage rise tend to lag inflation by at least twelve months. The empirical data bears this out. Most people get annual pay increases and many enterprise agreements are for multi year periods (often at least 3 years) with a fixed percentage increase (e.g. 3%) rather than being benchmarked to CPI

You can rest assured however that if it's a fixed % amount then next time it's up for renewal, be that in 2, 3 or however many years, the focus will very much be on closing the gap between previous pay rises and CPI.

Businesses in that situation will find themselves facing a big "overnight" jump in a single hit if we go forward another year or two. They might have paid (say) 2% this year and last, then there'll be a big step to close the gap between that plus actual CPI.

Whether it's forward looking or backward looking in terms of the actual agreement, the one thing common to any pay agreement for big business is both sides are consciously aware that CPI is a thing and will refer to it as a benchmark. Management will see it as the limit, workers will see it as the minimum, but both will refer to it.

I say that as someone who isn't at all keen on igniting a wages and inflation spiral. It's a reality though that any business that hasn't hiked pay rates recently due to some prior agreement is on borrowed time.

 

[Value Hunter]

History shows that free markets are inherently deflationary over long periods of time and we can see that in the early capitalistic era before the creation of central banks. Of course prices of individual items can fluctuate especially in the short term but the general trend is towards deflation. Any time a persistent pattern of inflation sets hold it is always caused by governments and central banks either through monetary expansion or through market distortions which either lower supply artificially (e.g. shutting down production during Covid or increasing corporate taxes and red tape) or increase demand artificially (government stimulus/handouts). A multi year economy wide inflation is not something caused by consumers.

 

[Value Hunter]

You can rest assured however that if it's a fixed % amount then next time it's up for renewal, be that in 2, 3 or however many years, the focus will very much be on closing the gap between previous pay rises and CPI.

Businesses in that situation will find themselves facing a big "overnight" jump in a single hit if we go forward another year or two. They might have paid (say) 2% this year and last, then there'll be a big step to close the gap between that plus actual CPI.

Whether it's forward looking or backward looking in terms of the actual agreement, the one thing common to any pay agreement for big business is both sides are consciously aware that CPI is a thing and will refer to it as a benchmark. Management will see it as the limit, workers will see it as the minimum, but both will refer to it.

I say that as someone who isn't at all keen on igniting a wages and inflation spiral. It's a reality though that any business that hasn't hiked pay rates recently due to some prior agreement is on borrowed time.

I agree with what you are saying in general but it also depends how much labour markets will weaken (unemployment is already nudging higher) as to the balance of power during negotiations on whether wages will be able to be renegotiated to match previous inflation or if they will increase at a lower level.

 

[Value Collector]

Wrong. Monetary inflation does not always spread through society evenly. In fact the Cantillon effect dictates that those closest to the money spigot benefit from inflation which then ripples out with wage earners and fixed income investors generally being the losers. Inflation tends to increase wealth inequality.

Even John Maynard Keynes who I am generally loathe to agree with pointed out the uneven effect of inflation and how it affects different classes in society.

"He takes an even tougher attitude in his
Economic Consequences of the Peace (1919), con-
demning inflation in the harshest possible terms.
He says :

Lenin is said to have declared that the best way to
destroy the capitalist system was to debauch the
currency. By a continuing process of inflation,
governments can confiscate, secretly and unob-
served, an important part of the wealth of their
citizens. By this method they not only confiscate,
but they confiscate arbitrarily; and, while the
process impoverishes many, it actually enriches
some [6; pp. 148-9].
He agrees with Lenin that inflation has the potenti-
ality of destroying the basis of capitalist society.
Lenin was certainly right. There is no subtler, no
surer means of overturning the existing basis of
society than to debauch the currency. The process
engages all the hidden forces of economic law on
the side of destruction, and does it in a manner
which not one man in a million is able to diagnose
[6; p. 149].
He then proceeds to specify at least four ways that
rapid inflation works to weaken the social fabric and
to undermine the foundations of the capitalist free-
market system. First, unforeseen inflation, he says,
results in a capricious and totally “arbitrary rear-
rangement of riches” that violates the principles of
distributive justice. B


Inflation is hugely damaging. You are talking about a hypothetical world in which there is a table of poker players playing poker and halfway through the game the wealthy host of the party arrives and gives each player $100 at the same time to add to their chip/betting stash while playing. Real life does not work this way. Inflation is always uneven and people do not receive the newly printed/borrowed money in equal amounts.

Its absurd when the elites tell consumers that we are the ones causing inflation. Its gaslighting in fact. These evil elites who are trying to control the whole world shut down the world because of a ******* flu i.e. Covid which was completely non-deadly and most certainly not a pandemic (just government disinformation). Which by the way Covid virus was caused by the Chinese and U.S. governments

So they shut down the world which reduced production of goods and services meanwhile many people were sitting and producing far less than before or in some cases nothing at the same time the governments printed huge amounts of money which consumers then spent while they were not producing. Both the shutting down of production (they should have just ignored Covid and let it run its course) and boosting the money supply at the same time spiked inflation. Then they turn around and tell consumers the inflation is our fault as if we are the ones who decided to stop producing or to print trillions of dollars.

I meant monetary inflation affects every one holding dollars the same. Where as inflation caused by the price of avo’s only affects people planning on using dollars to buy avo’s or something with avo’s in the supply chain.

 

[Value Hunter]

I meant monetary inflation affects every one holding dollars the same. Where as inflation caused by the price of avo’s only affects people planning on using dollars to buy avo’s or something with avo’s in the supply chain.

That is the whole point monetary inflation doesn't affect everybody holding dollars the same because it does not cause a uniform rise in the price level of goods and services. People spend their money on different things and have different needs. The price of one thing may stay the same and the price of another thing might go up by 50% even though inflation might average 6%. The past few years poor people have been disproportionately hurt by inflation because the most essential items (which take up a higher percentage of their income) were the things that rose most in price. Look at the inflation in food, electricity and rent. Who cares if the price of a getting a massage has stayed the same its irrelevant for poor people.

Also if the price of avocados rise due to a shortage then telling people to buy less avocados is not an ideal solution. The better solution is to start producing more avocados (which admittedly takes time).

The price of meat has skyrocketed the past few years and many working class people have cut back on eating quality meats (like steaks etc) and have instead substituted for cheaper protein such as chicken, tuna etc. So instead of putting the blame where it belongs (a combination of monetary policy and government induced supply disruption due to COVID and green agenda) you would rather tell these people "its your fault the price has gone up, stop buying steak you greedy guts! Why don't you eat chicken instead?"

Literally the whole point of what Keynes, Lenin and others were saying is that inflation doesn't affect everyone holding dollars the same! It affects them differently! There is plenty of empirical data showing that monetary inflation increases wealth inequality. I delve deeper into that if you really want. But just look at an extreme example like Argentina and it becomes obvious.

 

[Value Collector]

That is the whole point monetary inflation doesn't affect everybody holding dollars the same because it does not cause a uniform rise in the price level of goods and services. People spend their money on different things and have different needs. The price of one thing may stay the same and the price of another thing might go up by 50% even though inflation might average 6%. The past few years poor people have been disproportionately hurt by inflation because the most essential items (which take up a higher percentage of their income) were the things that rose most in price. Look at the inflation in food, electricity and rent. Who cares if the price of a getting a massage has stayed the same its irrelevant for poor people.

Also if the price of avocados rise due to a shortage then telling people to buy less avocados is not an ideal solution. The better solution is to start producing more avocados (which admittedly takes time).

The price of meat has skyrocketed the past few years and many working class people have cut back on eating quality meats (like steaks etc) and have instead substituted for cheaper protein such as chicken, tuna etc. So instead of putting the blame where it belongs (a combination of monetary policy and government induced supply disruption due to COVID and green agenda) you would rather tell these people "its your fault the price has gone up, stop buying steak you greedy guts! Why don't you eat chicken instead?"

Literally the whole point of what Keynes, Lenin and others were saying is that inflation doesn't affect everyone holding dollars the same! It affects them differently! There is plenty of empirical data showing that monetary inflation increases wealth inequality. I delve deeper into that if you really want. But just look at an extreme example like Argentina and it becomes obvious.

You are missing the point.

monetary inflation is equal across the board, it affects all dollars equally.

price inflation or deflation caused by external factors affecting supply chains doesn’t affect everyone equally, you are mixing up the two.

maybe go back and read my very first post where I explained 1 and 2

—————————

If there is a shortage of a commodity, lets say there was an earthquake in South America that shut down some copper mines for 3 months.

The first thing that needs to happen is for the Price of copper to rise, because it immediately sends out a signal to everyone in the market to change their actions if they can.

Yes, higher copper prices will incentivise miners to try an raise production, which is great.

but it will also provide an Incentive for consumers to waste less, recycle more, put off non urgent purchases, substitute where they can, draw down stockpiles etc etc.

It does all that without any central planning needed, the only other real options would be rationing, which is not a great outcome.

———————

if there is a shortage of Avocardos, you absolutely have to send a message through pricing to get people to consume less, because there is less.

The higher prices will also help alleviate some of the shortage, eg pay for shipping in avos from markets further away, cause some consumers to substitute for items in greater abundance, maybe let less avos go to waste, use them more sparingly etc.

and again all this co-operation without any central planning.

 

[Value Hunter]

I think you are missing the point. Inflation didn't happen because one day consumers woke up and decided to start consuming a lot more than normal.

Its ridiculous to blame consumers telling therm the inflation is caused by their over-consumption.

The inflation was mostly caused by central banks (money printing) and governments (COVID lockdowns, the Ukraine war, increasing trade tariffs etc) and to a lesser extent business (re-shoring and near shoring to make the supply chain more reliable albeit at the expensive of higher prices and profiteering by using inflation as a cover to raise prices more than their cost increases). Consumers only played a small part in the inflation story.

Consumers have been squeezed by rising debt servicing costs (higher interest rates on mortgages, credit cards, car loans, etc) and falling real wages (the past few years wages have not kept up with inflation) and they have not had the spending power to drive inflation higher. If you look at consumer spending in real terms the growth has been non existant in Australia. Retail sales were flat or negative for calendar year 2023 after accounting for inflation so your assertion that consumers are causing inflation by overspending does hold up to scrutiny.

 

[JohnDe]

Inflation is approaching concerning levels in Australia.

Inflation is a result of an economy running beyond its capacity.

Australia has not been able to respond to terms of trade booming due to massive capacity restraints.

We cant hire enough skilled workers due to lack of training and a delayed immigration response. We haven't spent money on simple stuff like communications, rail and ports.

The floating currency has assisted as a shock absorber but at some level this will become less effective.

Contemplate a Yuan revaluation increasing costs of Chinese imports or a fall in commodity prices reducing demand for the AUD. If TVs (ect) that cost the same as 15 years ago join food and rents and rise by 4% annually - what happens to interest rates?

The strong AUD has shielded us so far from oil prices and imported inflation. But when the terms of trade flatten or fall, who wants to own AU?. We are as leveraged as the Yanks and have a far smaller manufacturing base. Our current account deficit is far beyond the previously fearful 6% of GDP despite our terms of trade being multiples of past levels.

This is frightening...

What happens to our CAD when copper, coal and iron ore drop 30%? Who would want to hold AUD when we have no ability to attract FOREX.

Whithout mining, what are we good at?

Property speculation and banking?



We are kidding ourselves...

If we begin to import inflation from our trading partners and the stuff we buy that is the same price as 10 years ago starts rising it is not hard to see 5%+ inflation.

The RBA will ramp rates as hard as they need-to in such a situation.

While I dont think they will reach the 20% rates of late 80s and 90s - contemplate the average Aussie paying off his $350K mortgage at 10% - let alone higher.

We have a market trading at extremely high PEs in the face of this risk and a bunch of pollies ready to pour more fuel on the fire with $30bn worth of cash and no real reform.

I am typically bullish by nature, but inflation worries me to the core.

Costello tells lies about his comfort in a 2% headline rate, but this is a false number. The same BS number exceeded 4% recently when the underlying was far lower and you can guess which number he chose then???

Anyone else contemplating interest rates 1%+ more than current due to inflation?

Time for an update.

We survived the 80's, we will survive the 20's, again.

 

[TimeISmoney]

I think you are missing the point. Inflation didn't happen because one day consumers woke up and decided to start consuming a lot more than normal.

Its ridiculous to blame consumers telling therm the inflation is caused by their over-consumption.

The inflation was mostly caused by central banks (money printing) and governments (COVID lockdowns, the Ukraine war, increasing trade tariffs etc) and to a lesser extent business (re-shoring and near shoring to make the supply chain more reliable albeit at the expensive of higher prices and profiteering by using inflation as a cover to raise prices more than their cost increases). Consumers only played a small part in the inflation story.

Consumers have been squeezed by rising debt servicing costs (higher interest rates on mortgages, credit cards, car loans, etc) and falling real wages (the past few years wages have not kept up with inflation) and they have not had the spending power to drive inflation higher. If you look at consumer spending in real terms the growth has been non existant in Australia. Retail sales were flat or negative for calendar year 2023 after accounting for inflation so your assertion that consumers are causing inflation by overspending does hold up to scrutiny.

You forgot all the stupid things people bought during and after covid like the designer cats and dogs, brand new cars that had a 2 year waiting list, and so on. In the grand scheme of things, everything contributed to the inflation, wages, material supply, cheap labour shortages, and the price of energy. You only need to look as far as mining towns at their peak, to see the ridiculous prices people charged for things because of the high wages in the area. Have a look at what is the biggest expense for households now, rent and mortgages, now do you think people would have the borrowing capacity to keep on pushing house prices up if they had low wages? An increase in house prices usually means an increase in land values, which increases council rates, increase in insurance, increases in land tax, increases in rents.

 

[JohnDe]

If they get a 16% pay rise, we should all get one. Should the boss be allowed to get a pay rise?

Industrial Relations Minister, Tony Burke. In a narrative not heard since the 1970s, he has lambasted the company for making a profit – forget about the return on assets – and effectively told DP World to cave into the demands of the MUA. These demands involve a pay rise of 16 per cent over two years, which is well above the rate of inflation.​

​

A great deal of information about the workforce conditions in the stevedoring industry, including DP World workers, is deliberately kept from the public. Let’s be clear: these workers are extremely well-paid, with pay levels in excess of $150,000 per year plus very generous entitlements. Because of the intermittent nature of ship arrivals, workers are paid princely shift allowances, well in excess of community standards.​

​

A great deal of information about the workforce conditions in the stevedoring industry, including DP World workers, is deliberately kept from the public. Let’s be clear: these workers are extremely well-paid, with pay levels in excess of $150,000 per year plus very generous entitlements. Because of the intermittent nature of ship arrivals, workers are paid princely shift allowances, well in excess of community standards.​

 

[divs4ever]

These demands involve a pay rise of 16 per cent over two years, which is well above the rate of inflation.

???

above the fiddled CPI, indeed ... but real inflation , maybe not


... and since there is a lag between demanding the wage rise and starting to receive it the wage claims try to guess the next inflation rate is say the coming six months before they start receiving the wage rises

but this is all just 'a divide to conquer game to the ALP , they had plenty of experience playing 'good cop , bad cop '

 

[Smurf1976]

So they shut down the world which reduced production of goods and services meanwhile many people were sitting and producing far less than before or in some cases nothing at the same time the governments printed huge amounts of money

I'll avoid arguments about the pandemic and so on but on the economic side there's no denying this reality.

A direct cut to the production of goods and services in total and also in terms of a very wide range of individual goods and services being affected with more than a few categories literally going to zero, they shut down completely.

Meanwhile printing money like crazy.

So a lot more money and at the same time a significant drop in things to spend it on. That's getting straight to the classic definition of inflation being too much money chasing too few goods and services. Yep, that's the situation alright.

 

[TimeISmoney]

I'll avoid arguments about the pandemic and so on but on the economic side there's no denying this reality.

A direct cut to the production of goods and services in total and also in terms of a very wide range of individual goods and services being affected with more than a few categories literally going to zero, they shut down completely.

Meanwhile printing money like crazy.

So a lot more money and at the same time a significant drop in things to spend it on. That's getting straight to the classic definition of inflation being too much money chasing too few goods and services. Yep, that's the situation alright.

What happened to all the covid payments that people defrauded, that's all dead and buried now.

Then you had people who drew on their super to put down a deposit on a house because they couldn't save in the first place, and I bet that ended badly for many.

 

[Belli]

Watch this index rather than the CPI.

Selected Living Cost Indexes, Australia, June 2024

Living Cost Indexes (LCIs) measures the price change of goods and services and its effect on living expenses of selected household types

www.abs.gov.au

 

[Value Collector]

I think you are missing the point. Inflation didn't happen because one day consumers woke up and decided to start consuming a lot more than normal.

Its ridiculous to blame consumers telling therm the inflation is caused by their over-consumption.

The inflation was mostly caused by central banks (money printing) and governments (COVID lockdowns, the Ukraine war, increasing trade tariffs etc) and to a lesser extent business (re-shoring and near shoring to make the supply chain more reliable albeit at the expensive of higher prices and profiteering by using inflation as a cover to raise prices more than their cost increases). Consumers only played a small part in the inflation story.

Consumers have been squeezed by rising debt servicing costs (higher interest rates on mortgages, credit cards, car loans, etc) and falling real wages (the past few years wages have not kept up with inflation) and they have not had the spending power to drive inflation higher. If you look at consumer spending in real terms the growth has been non existant in Australia. Retail sales were flat or negative for calendar year 2023 after accounting for inflation so your assertion that consumers are causing inflation by overspending does hold up to scrutiny.

I feel like you haven‘t Understood my point about there being 2 types of inflation.

The Covid lockdowns, war in Ukraine etc etc that’s all supply chain induced inflation, raising wages does nothing to alleviate that, that’s is what I am talking about.

when Putin shut off gas pipelines and caused energy prices to skyrocket, the only answer is to reduce demand until we can raise supply.

it Doesn’t matter what the reason for the reduced supply is, whether is was caused by weather, war, covid it doesn’t matter, the fact is at that moment we have less, it’s just a fact.

Higher prices will cause consumers to be more cautious with the resource, substitute where they can etc etc. and the higher prices will incentivise suppliers to supply more, divert shipments from other markets etc.

its the only way it can work, unless you install a system of rationing which doesn’t help with increasing supply.