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Summary of Prof Bill Mitchell’s latest update on Australian inflation

Extracted from a post in the Facebook ERA Discussion Group on 31 July 2022

“1. There has been a lot of talk about inflationary expectations breaking out and that has been used to justified the interest rate rises. The private banking economists that are continually wheeled out in the media to comment on prospective interest obviously talk up interest rate rises because their organisations benefit, which poses the question as to why they are used in this way and held out as independent authorities.

“But the most reliable indicator of medium- and long-term inflation is now falling.
2. One of the major drivers of the inflation – housing – is now a negative contributor.
3. In my view (with no vested interests), the inflation trends provide no basis for the RBA to keep hiking interest rates.
4. There is no wages pressure.
5. Major contributors are in decline.
6. There is no major structural bias towards persistently higher inflation rates.

“The inflation rate in Australia is following world trends upwards, although it is still below the US levels. The major sources of price increases are temporary – adjustments back to pre-pandemic levels, anti-competitive cartel behaviour and the War in Ukraine. In Australia’s case, these influences are supplemented by shortages of building materials due to bushfires and food price inflation due to the major floods. I am calm. The correct policy response should be to provide fiscal support for lower-income households to help them cope with the cost of living rises at present.”


From Geoff Davies: Much the most sensible comment I have seen about inflation – including the simple measure of supporting poorer people to cope. Gosh, we could tax the rich to pay the poor!

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