Inflation

[over9k]

Now in what should be a surprise to absolutely nobody, markets are repricing their previously anticipated 50 point fed cut to a 25, and so markets and especially growth plays are taking a tumble. Meanwhile, the next RBA meeting is expected to be a hold.

Yet another instance of markets getting ahead of itself re: inflation/rate expectations.

 

[JohnDe]

More proof that governments are currently the biggest cause of inflation -

Dressing up a package of subsidies and handouts as cost-of-living relief amounts to fraud. It will put upward pressure on inflation, a hidden tax most felt by the poorest.​

​

The budget handed down by Queensland Treasurer Cameron Dick in June is arguably the most reckless and irresponsible pre-election fiscal splurge in Australian political history. The electricity subsidy of $1000 per household comes on top of a $300 subsidy from the federal government.​

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Public transport fares have been slashed to 50 cents for the next six months, vehicle registration reduced by 20 per cent and first-home concessions extended.​

​

None of these subsidies is means-tested, while the inflation they help to drive is highly regressive.​

​

To add insult to injury, Miles has paid for these cheap, tawdry bribes with other people’s money. The bill will be added to the state’s debt, which is forecast to rise to $111bn over the next four years. Until the start of the last decade, it was close to zero. ​

​

Public spending is off the charts in the US, but inflation has declined mainly because of productivity improvements. On the other hand, Australia is hit by the double whammy of low or negative productivity growth and high public spending.​

Canberra’s fiscal splurge has infected the states

Winning a state election can be expensive, particularly if your brand is as tarnished as Labor’s in Queensland. This year’s Queensland state budget allocated $3.7bn for pre-election sweeteners, roughly $1000 per registered voter. It’s a risky investment since the odds of Steven Miles retaining government have blown out to $5 on Sportsbet.

Dressing up a package of subsidies and handouts as cost-of-living relief amounts to fraud. It will put upward pressure on inflation, a hidden tax most felt by the poorest.

The budget handed down by Queensland Treasurer Cameron Dick in June is arguably the most reckless and irresponsible pre-election fiscal splurge in Australian political history. The electricity subsidy of $1000 per household comes on top of a $300 subsidy from the federal government.

Public transport fares have been slashed to 50 cents for the next six months, vehicle registration reduced by 20 per cent and first-home concessions extended.

None of these subsidies is means-tested, while the inflation they help to drive is highly regressive.

To add insult to injury, Miles has paid for these cheap, tawdry bribes with other people’s money. The bill will be added to the state’s debt, which is forecast to rise to $111bn over the next four years. Until the start of the last decade, it was close to zero. There is no excuse that can be mounted in a state that has done very well out of the mining boom.


Queensland Premier Steven Miles, along with Deputy Premier Cameron Dick and Minister for State Development Grace Grace. Picture: Lyndon Mechielsen

The outbreak of fiscal incontinence afflicting Canberra has spread to Brisbane, Melbourne, Sydney and other state capitals, where the imperative to balance the books appears to have been completely forgotten. The effects of this cavalier attitude to fiscal policy have been delayed in the resource states by a windfall in royalties.

But the falling commodity price is bringing the chickens home to roost, as budget deficits blow out accordingly.

The Treasury boffins were caught entirely by surprise by the growth in state spending. Jim Chalmers’ May budget forecast that public final demand – the combined total of state and federal spending – would rise by a mere 1.5 per cent in real terms over the next two years.

It was an optimistic assumption at a time when there were wall-to-wall Labor governments in mainland states.

Last month, the Reserve Bank issued a more believable estimate of a 4 per cent rise in total government spending this financial year. That means an extra $70.7bn will be circulating in the economy by the end of June, twice as much money as the government will spend on Medicare.

That’s a very scary number if you believe that spendthrift governments drive inflation, which left-leaning economists increasingly don’t. The fad of Modern Monetary Theory, or voodoo economics, has become the new orthodoxy among the anointed. Fretting over the details of fiscal policy is considered old hat.

The Australia Institute’s personable director and chief economist, Richard Denniss, articulated the new thinking in Nine newspapers earlier this year. “While money can’t buy everything, the Australian government can ‘buy’ a lower consumer price index,” Denniss wrote. “Its decision to spend $3.5bn on an Energy Relief Fund is an innovative, and likely effective, policy response to current idiosyncratic and challenging economic circumstances.”

Denniss is right, up to a point. The Treasurer can buy a temporary reduction in the CPI, which measures the price paid by customers, not the money governments stuff in their pockets. Yet the CPI is just a measure of inflation, not inflation itself.

Artificially depressing the CPI doesn’t alter underlying inflation any more than second-hand cars can be rejuvenated by fiddling with the odometer.

Like the Treasurer, Denniss takes a fatalistic view of inflation, believing economic destiny is shaped by spirits beyond human control. In their minds, the current burst of inflation is caused by the external shocks of post-Covid blockages in supply chains and Russia’s invasion of Ukraine.

Yet three years after pandemic restrictions began to be removed, and 31 months after the Russians invaded Ukraine, the voodoo explanation is wearing thin, particularly since inflation has returned to normal levels in most OECD nations. Underlying inflation in Australia is higher than in any country in the G10.

Inflation in the Eurozone fell to 2.2 per cent in August, prompting the European Central Bank to cut interest rates last week. The common currency agreement requires member nations to abide by the Stability and Growth Pact, restricting budget deficits to 3 per cent of GDP.

The Germans, the most dominant economic partner, are particularly strict about keeping to the rules, driven by nightmares of wheelbarrows of near-worthless banknotes exchanged for half a brick of pumpernickel.

Public spending is off the charts in the US, but inflation has declined mainly because of productivity improvements. On the other hand, Australia is hit by the double whammy of low or negative productivity growth and high public spending.

Sadly, we are reaping the rewards of growing economic illiteracy after decades of growth, in which a functioning economy appeared to be part of our national inheritance. The sweat and tears of the 1980s and 1990s have largely been forgotten. The days when fiscal and monetary policy were part of everyday civic conversation are remembered by a grumpy old few. Fighting the intergenerational injustice of paying for recurrent spending, but increasing the debt burden on future generations, appears to be a lost cause.

This dumbed-down atmosphere has encouraged the Queensland Labor government to treat voters as mugs by pretending government handouts will ease the cost of living. But by committing to subsidising electricity only for the next year, and paying the subsidy upfront, it’s merely delaying the shock to household budgets and the rise of CPI.

The public transport subsidies are guaranteed for only six months, which will comfortably cover the election campaign. Yet, intriguingly, the introduction of 50c public transport tickets was delayed until August 5, not July 1 like the other measures. It means Queenslanders can ride buses and trains to their heart’s content until February.

Might this scheduling betray the likely timing of our next federal election? A date in early 2025 has firmed as the favourite in the betting markets. Watch this space.

 

[divs4ever]

Now in what should be a surprise to absolutely nobody, markets are repricing their previously anticipated 50 point fed cut to a 25, and so markets and especially growth plays are taking a tumble. Meanwhile, the next RBA meeting is expected to be a hold.

Yet another instance of markets getting ahead of itself re: inflation/rate expectations.

yes i was wondering about that ( although a 5% drop probably won't present me any buying opportunities )

but there might be some stray opportunities

a reluctance to cut MIGHT take the market totally off-guard but most will cynically expect some sort of cut in front of the elections ( and some will desperately hope for a cut )


watching the market reaction might be most educational

 

[divs4ever]

More proof that governments are currently the biggest cause of inflation -

Dressing up a package of subsidies and handouts as cost-of-living relief amounts to fraud. It will put upward pressure on inflation, a hidden tax most felt by the poorest.​

​

The budget handed down by Queensland Treasurer Cameron Dick in June is arguably the most reckless and irresponsible pre-election fiscal splurge in Australian political history. The electricity subsidy of $1000 per household comes on top of a $300 subsidy from the federal government.​

​

Public transport fares have been slashed to 50 cents for the next six months, vehicle registration reduced by 20 per cent and first-home concessions extended.​

​

None of these subsidies is means-tested, while the inflation they help to drive is highly regressive.​

​

To add insult to injury, Miles has paid for these cheap, tawdry bribes with other people’s money. The bill will be added to the state’s debt, which is forecast to rise to $111bn over the next four years. Until the start of the last decade, it was close to zero. ​

​

Public spending is off the charts in the US, but inflation has declined mainly because of productivity improvements. On the other hand, Australia is hit by the double whammy of low or negative productivity growth and high public spending.​

very interesting that the State Government feels the need to bribe at all , let alone to a major extent
the opposition have literally been a 'shadow government'

does the state government have concerns about a populist groundswell of independent/minor party candidates ?

 

[mullokintyre]

Now in what should be a surprise to absolutely nobody, markets are repricing their previously anticipated 50 point fed cut to a 25, and so markets and especially growth plays are taking a tumble. Meanwhile, the next RBA meeting is expected to be a hold.

Yet another instance of markets getting ahead of itself re: inflation/rate expectations.

Looks like the markets got their wish.
50 BPS it is.
The economy that was running so well according the Fed Chairman, needed a 50 point cut to keep going.
The market reaction?
Despite getting what they wanted, it seems it was not quite enough.
I would have thought most of it would have been factored in already.


And in another one of those strange anomalies, the AUD/USD was barely changed.
Mick

 

[waterbottle]

Time to start the recession thread.
The Fed knows it.

 

[BossMan.]

Time to start the recession thread.
The Fed knows it.

As all the papers and commentators are saying, Fed Powell better be able to give a good reason for 50bps, AFR has some good opinion pieces on it this morning

 

[mullokintyre]

Adam creighton had an article this morning asking about pressure on the RBA to ease rates.
Whatever reasons Powell comes up with, it might be better to compare Oz and USA in a few data points.
Interest rates in OZ 4.35 % , still below the US rate of 4.75 to 5.0 after the 50BPS cut.
Oz Inflation at 3.5% versus the US at 2.5%
Oz GDP at +1.5% versus US GDP at +3.0%
Unemployment rate in both economies sitting at a reported 4.2%.
Based on those figures, its difficult to justify an OZ rate cut other than for the fact that like the USA, we have a federal election due the next 9 months.
Mick

 

[qldfrog]

View attachment 184436
Adam creighton had an article this morning asking about pressure on the RBA to ease rates.
Whatever reasons Powell comes up with, it might be better to compare Oz and USA in a few data points.
Interest rates in OZ 4.35 % , still below the US rate of 4.75 to 5.0 after the 50BPS cut.
Oz Inflation at 3.5% versus the US at 2.5%
Oz GDP at +1.5% versus US GDP at +3.0%
Unemployment rate in both economies sitting at a reported 4.2%.
Based on those figures, its difficult to justify an OZ rate cut other than for the fact that like the USA, we have a federal election due the next 9 months.
Mick

And you got your answer: RBA rate cuts at the next meeting...

 

[waterbottle]

And you got your answer: RBA rate cuts at the next

Did they announce it?

View attachment 184436
Adam creighton had an article this morning asking about pressure on the RBA to ease rates.
Whatever reasons Powell comes up with, it might be better to compare Oz and USA in a few data points.
Interest rates in OZ 4.35 % , still below the US rate of 4.75 to 5.0 after the 50BPS cut.
Oz Inflation at 3.5% versus the US at 2.5%
Oz GDP at +1.5% versus US GDP at +3.0%
Unemployment rate in both economies sitting at a reported 4.2%.
Based on those figures, its difficult to justify an OZ rate cut other than for the fact that like the USA, we have a federal election due the next 9 months.
Mick

Agreed. Although IMO it's only a matter of time before the US rates are below Oz rates, in which case we follow.

 

[qldfrog]

Did they announce it?



Agreed. Although IMO it's only a matter of time before the US rates are below Oz rates, in which case we follow.

No, but we have elections coming...so not a big surprise..none of the puppets care about economy just re-election

 

[mullokintyre]

Did they announce it?



Agreed. Although IMO it's only a matter of time before the US rates are below Oz rates, in which case we follow.

The RBA has a history of being too late with action.
They were six months too late at least in starting the raising cycle, and most likely will be late in the easing cycle.
That said, the RBA interest rate easings rarely come in time to help business investment, there is no point in borrowing money unless you can make it earn more.
If the economy is contracting, where do the sales come from?
The easing rates mainly boost the housing market, as if that is something we need!.
Mick

 

[IFocus]

The RBA has a history of being too late with action.
They were six months too late at least in starting the raising cycle, and most likely will be late in the easing cycle.
That said, the RBA interest rate easings rarely come in time to help business investment, there is no point in borrowing money unless you can make it earn more.
If the economy is contracting, where do the sales come from?
The easing rates mainly boost the housing market, as if that is something we need!.
Mick

One change I haven't heard for a long time is the RBA kepting rates higher than other markets to give itself room to cut so that they have an impact.

I guess with the higher levels of debt both public and privates moving rates at these lows has a higher gain ratio.

 

[JohnDe]

The RBA has a history of being too late with action.
They were six months too late at least in starting the raising cycle, and most likely will be late in the easing cycle.
That said, the RBA interest rate easings rarely come in time to help business investment, there is no point in borrowing money unless you can make it earn more.
If the economy is contracting, where do the sales come from?
The easing rates mainly boost the housing market, as if that is something we need!.
Mick

To be fair, inflation is too high and causing immense cost of living pressures. The 3000 builders that have gone broke in the past 12 months was because of inflationary cost, not the interest rate. Cutting the interest rate could cause inflation to increase further.

Governments need to take some responsibility for keeping inflation high. Canberra’s fiscal splurge has infected the states

 

[mullokintyre]

Just got off the phone with my brother wo is/was a builder on the Mornington Peninsula, mostly Sorrento/Portsea stuff.
His last three houses have been older weatherboard knockdowns that he dozes flat and builds new more expensive ones.
His latest property he bought about 4 years ago and had rented.
He has decided that he will not go ahead with it, just sell the property and retire.
He has to pay about 8,000 a year to keep his builders license.
Insurance premiums are about the same.
He was charged 12,000 land tax last year courtesy of the Victorian government.
The Council has said the cost of getting a development/building permit will be a tad over $11,000.
The cost of steel roofing has gone through the roof, timber has come back a bit but is still astronomical.
He has used LVL beams extensively in the past, but at least 25% of the LVL products came from Russia and from Ukraine.
The war between those two countries put the kybosh on that and the prices soared.
Fortunately for him, he is in a position to retire, but three of his sons in law are still in the trades and finding that their costs are spiraling out of control, and are only doing very high end stuff for people where money is no object.
Mick

 

[over9k]

Fed drops 50, BOE holds at 5.00, 8:1 vote ratio. Only one member wanted to cut.

Markets are pricing a hold at the next two RBA meetings.

Lots of talk about central bank balance sheet sizes and how to reduce them now.

 

[over9k]

Time to start the recession thread.
The Fed knows it.

Just waiting on a few more indicators bottle. I don't want any bull**** "technical recession" or "per capita recession" tomfoolery. None of this "well the unemployment rate rose but the economy grew so we ain't in a recession" drivel you'll hear from the authorities trying to muddy the waters.

There's a thread called "the state of the economy at the street level" that's probably a good precursor, I'll start posting in there a bit more first.

Once there's enough indicators out there to start some kind of "who are they kidding" narrative, I'll start it.

 

[over9k]

and are only doing very high end stuff for people where money is no object.

And this, mullok, is what I've been pointing at for quite some time: We're heading into a system of have-not's vs have-yachts. Even the upper-middle, nevermind the middle, is being annihilated. The high end of almost everything will soon be the only market left.

It's for this reason that I have been very seriously thinking about a levered-up-to-the-hilt eastern sydney real estate purchase. The RBA stubbornly refuses to raise rates any further so I don't have to worry about the debt getting any more expensive and if very wealthy people are soon going to be the only ones with any spare cash left then it's a "product" that will actually have a target market remaining. The more wealth gets concentrated at the top the more eastern sydney real estate prices will rise, it's as simple as that. Combine this with inflation destroying it by a certain "above target" amount every year and...

 

[mullokintyre]

And this, mullok, is what I've been pointing at for quite some time: We're heading into a system of have-not's vs have-yachts. Even the upper-middle, nevermind the middle, is being annihilated. The high end of almost everything will soon be the only market left.

It's for this reason that I have been very seriously thinking about a levered-up-to-the-hilt eastern sydney real estate purchase. The RBA stubbornly refuses to raise rates any further so I don't have to worry about the debt getting any more expensive and if very wealthy people are soon going to be the only ones with any spare cash left then it's a "product" that will actually have a target market remaining. The more wealth gets concentrated at the top the more eastern sydney real estate prices will rise, it's as simple as that. Combine this with inflation destroying it by a certain "above target" amount every year and...

I have this magnificent structure for sale in Sydney with one of the very best views up and down the harbour.
Some very famous people(including Paul Hogan) have worked on this structure, its got history, heritage, cannot possibly be built out, its unique an icon of Sydney known all over the world.
And today I can let you have it for a mere $80mill before it goes on to the public market.
let me know if there is any interest.
Mick

 

[over9k]

$80mill

Got change for a hundred?