Business Spectator Column
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posted on 25 April 2008 by skirchner
in Economics, Financial Markets
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Some commentators have suggested that inflation in Australia is part of a global phenomenon, with the implication that domestic policy can do little about it. It is certainly true that tradeables inflation has accelerated in recent quarters, despite the strength in the Australian dollar, removing some of the restraint previously provided in relation to overall inflation. Yet non-tradeables inflation, at 5 per cent annual growth, remains more pronounced that at any time since the introduction of the goods and services tax in the September quarter 2000. CPI excluding transport, a reasonable proxy for the CPI excluding the effects of oil prices, rose 1.3 per cent quarter-on-quarter and 3.9 per cent year-on-year, also the strongest annual growth since the year following the introduction of the GST. The domestic component of the producer price index is running at a record 6.1 per cent year-on-year.
By way of comparison, headline inflation in New Zealand is running at 3.4 per cent, non-tradeables inflation at 3.5 per cent and the weighted median at 3.2 per cent. The New Zealand economy is even more supply-constrained than Australia and even more exposed to world prices, but has run a tighter monetary policy, with a real cash rate near 5 per cent compared to Australia’s 3 per cent. Australia’s inflation problem is largely home grown.
A quick news.google for “inflation” finds that inflation in the Euro area has reached intolerable levels, Japanese annual inflation hit a decade-high of 1.2 percent in March and South Africa PPI at five-year high.
Seems like a global phenomenon to me.
Apart from New Zealand, is there anywhere that’s not seeing accelerating inflation? How much are you willing to bet the next Kiwi inflation number won’t start with a ‘4’?
A guess what the common thread is in all these inflation stories? I’ll give you a clue, its black and its gooey, and we don’t seem to be finding as much of it as we used to.
Posted by .(JavaScript must be enabled to view this email address) on 04/25 at 08:41 PM