RBA’s Kraehe Highlights Supply-Side Constraints
RBA Board member Graham Kraehe highlights the capacity constraints driving monetary policy tightening:
Asked if there was a risk of too much policy tightening choking off recovery, Mr Kraehe said the focus should be on price rises rather than supporting demand.
“The risk is more to cost pressure and inflation than it is to the demand side,” he said.
“Our unemployment has clearly now peaked. We’ve got increasing and continuing demand for employment in the resources sector that will put pressure on wages,” said Mr Kraehe, who is also chairman of Bluescope Steel.
“As an economy, one of the issues for us will be our ability on the supply side, whether it be on housing or the labour market, to supply enough resources to be able to take some of the pressure off cost inflation. Wages is one thing, housing another,” Mr Kraehe said.
posted on 22 January 2010 by skirchner
in Economics, Financial Markets, Monetary Policy
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Of course the demand for employment in the resources sector during 2009 has been entirely, and I mean entirely, due to Chinese fiscal and monetary stimulus. A fact that is conveniently glossed over by most RBA board members. Kraehe says:
“I’m very confident about the China story and the positive impact for Australia, provided we can get our infrastructure in place and take pressure off the supply side of the economy.”
RBA - Asleep at the wheel. 95% of Chinese growth in 2009 was fixed asset investment FFS!
Stephen, you bang on endlessly about the evils of government interference, but when China floods its economy with liquidity, and spends trillions on bridges to nowhere that’s all fine and dandy. OTOH if Kev builds a few school halls its the end of the frickin’ world!
Posted by .(JavaScript must be enabled to view this email address) on 01/24 at 01:25 PM
There is a good argument that the RBA has been doing better than other central banks.
As for China, do we know that their infrastructure spending is mostly waste? I would have thought, given their level of development, it would be easy to find lots of useful infrastructure to build. These and other points are made here.
Posted by Lorenzo on 01/25 at 08:24 AM
According to the “Kirchner rule”, when the Economist declares something to be true, generally the opposite is the case.
Is China’s infrastructure spending wasteful? Put it this way, most of the lending has been done by state-owned banks, lending to state-owned enterprises run by party officials. Sounds like a recipe for a tsunami of NPLs down the track. All this in an economy where the investment share of GDP is already at 45%.
You want to see some waste and mal-investment? How about empty city of Ordos or Shanghai mortgages up 1600% in 2009 .
Posted by .(JavaScript must be enabled to view this email address) on 01/25 at 09:56 AM