The true story behind the rise in inflation to around four per cent is not pleasant.
The capital of Australian inflation is Brisbane. The best indicator is Brisbane’s apartment building costs which are now 33 per cent above Sydney and 70 per cent above Melbourne. Many tradies who moved to Melbourne some years ago have returned to Queensland to enjoy the relaxed building style (i.e. low productivity) and high pay.
As I reported earlier this month there is a surge in retail spending around the nation except in Victoria. We have a government in Canberra who seeks re-election and is spending wildly which must be further increasing the non Victorian demand surge.
In Victoria the dismay of being saddled for two years with another version of Daniel Andrews and his wild borrowing shatters confidence.
Businesses around the land are encountering relentless cost rises particularly in services. Many enterprises can’t pass those costs on so are reducing labour costs.
But in areas where there is demand they are still passing on the costs which in April and May boosted inflation. Now in June with demand stronger in most areas of the country it will be easier to pass on costs via prices.
Into that dangerous environment the Albanese government is set to fire into the economy a three-headed stimulus rocket.
The first firing involves the tax cuts.
The second is the government advocated a rise in the minimum wage which spread its explosive material through awards and into wage negotiations. There are now wage rises galore.
Finally, those who are able to draw pensions from their superannuation funds get increased availability from July 1.
Add to that rampant Federal government expenditure including energy subsidies to artificially reduce the inflation they are stimulating.
The Albanese government is preparing for an election and either does not care or does not know the inflation/interest rate pressure its actions are creating.
It’s true that these stimulants will be offset to some extent by the lower cost of goods imported from China which is holding back inflation in most other developed countries.
Reserve Bank Governor Michele Bullock will not have yet seen details of the increased demand in June. But it will come through before the next Reserve Bank meeting in August.
It is likely that hawks around the Reserve Bank board table, who have wanted to raise interest rates for some months, will now press much harder.
But Australia is two nations. Victoria, and the rest.
An increase in interest rates in all mainland states except Victoria will, of course, make things tougher and means those with mortgages will bear more inflation fighting blows. For Victoria it will be catastrophic.
Making the impact worse will be the fact that in many areas job insecurity is set to return.
During April and May, when sales were stagnant, costs were still going through the roof, and a vast number of national enterprises began to realise that the only way they could maintain profits in the face of resistance to price rises was to relook at their cost structures. And we are seeing this strategy applied over many large companies including the banks, Telstra, Bunnings, The Seven and Nine networks and so on.
The June rise in sales outside of Victoria will not halt that cost efficiency process because companies realise that if inflation momentum continues interest rates will rise to eventually snuff out the retail resurgence. It is therefore important to get costs under control. Moreover, on August 26 the Industrial Relations act comes into operation which is designed to increase costs and lower productivity and therefore underwrites long term inflation.
It is important for the nation that the Reserve Bank makes it very clear that the biggest contributor to any rise in interest rates is the Federal government.
Assange release
Full marks to the Albanese government for its work in securing the release of Julian Assange. And it’s also good to see the opposition supporting the government on this issue.
But as I set out earlier this week both parties suffer from rank political hypocrisy. We have our own homegrown Julian Assange, Richard Boyle, who told the truth about the terrible abuse of small business people by the ATO.
The truth was verified and, as a result of Boyle’s truth telling, the ATO changed many of their methods. The Coalition wanted him jailed for the term of his natural life for this truth telling. The Albanese government changed the act but then exploited a loophole they created.
For the current government, telling the truth now involves a penalty of 20 to 30 years jail- – about equal to murder. Surely there must be somebody in the government with a conscience about the treatment of our home grown Julian Assange.