Inflation: Reality Versus Spin, Versus Policy…

Ask most people, and they will say prices are rising, and rising fast. The latest consumer surveys showed that households across the country expect inflation to bubble higher, and our surveys confirm more are experiencing cash flow stress. In Australia as in many other countries inflation was already trending higher before the Gulf war and the spike in Oil prices and other commodities are going to flow through into more prices later, despite Government attempts to ease the effects by cutting fuel duty for a period, something which will reverse later, and spike inflation anew. The official figures released by the Government agencies like the ABS in Australia tend to average out real inflation, which for many is running a lot hotter, and then Central Banks go for some trimmed measure, seeking to isolate the more extreme movements of say petrol at the pumps in the quest for some mythical more reliable underlying indicator on other consumer prices. Kevin Walsh the New Fed Chair has I think indicated he has a preference to an alternative method of assessing inflation, which is conveniently lower allowing greater capacity for rate cuts as opposed to rate rises. In the next week or so, we will get more Central Bank rate decisions, following the Bank of Canada’s decision to hold their key interest rate at 2.25% yesterday. Governor Tiff Macklem said economic weakness combined with rising inflation is a dilemma for monetary policy and that monetary policy needs to be “nimble” as uncertainty remains elevated. Economic weakness combined with rising inflation is a dilemma for monetary policy. Raising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk that higher inflation becomes persistent.” Yesterday we got the latest CPI date from the US, where Inflation accelerated again in May as the Iran war pushed up energy prices, outpacing wages for a second straight month. The consumer price index climbed 4.2% from a year earlier, the most since early 2023. The energy index rose 3.9% in May, accounting for over 60% of the monthly all-items increase. Next week the RBA’s monetary policy broad will meet, and Markets will be hyper-focused on the tone in both the press conference and statement. Again a Central bank lacking credibility, with inflation stuck well above target, and rising. And recently Westpac ways there was a 10% drop in mortgage demand over the three weeks since the government unveiled tax changes. But with Australian 10-year bonds near 5% and 30-year bonds above 5.4%, investors are signalling that inflation, deficits and government borrowing remain concerns. Cutting the cash rate while government spending remains elevated risks stimulating demand without addressing the underlying supply-side pressures that have driven much of Australia’s inflation problem. All of which says, there is more spin in the inflation readings than anything else, but when we get a debate about which inflation view to bank on we know we have a problem. Yet the real problem sits in the real world of higher and higher prices, because it is the cumulative effect of cascading inflation, which devalues wages which is the real story. And central bankers with their models are tweaks to rates are a million miles from real people. Their policy errors hit home literally, as more households feel the pain. http://www.martinnorth.com/ Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ Go to the Walk The World Universe at https://walktheworld.com.au/ Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts Please consider supporting our work via Patreon: https://www.patreon.com/DigitalFinanceAnalytics The full detailed set of post code data is available as a subscription service. Or make a one-off contribution to help cover our costs via PayPal at: https://www.paypal.me/MartinDFA We also can receive bitcoins at: 13zBL1oRib9VJu8Uc9zUGNhxKDBBgUpDN1 Please share this post to help to spread the word about the state of things.... Caveat Emptor! Note: this is NOT financial or property advice!! 🚨BEWARE OF SCAMMERS🚨 As there are accounts impersonating Walk The World in the comments on YouTube, note that our comments will have a distinguishable verified symbol. And remember that we will never message you asking you to give us money or talk to us on other platforms such as WhatsApp or Telegram