It is time for another trip to a land down under and my attention has been piqued by this.
Australia’s Consumer Inflation Expectations for October rose to 4.8% from 4.7% prior, marking the highest reading since June. ( Forex Factory)
That is from the Melbourne Institute and as you can see things are expected to get rather hot which adds to a sense of unease from its actual inflation reading.
TD-MI Inflation Gauge showed a 0.4% increase month-over-month in September, rebounding from a 0.3% fall in the prior month. Meanwhile, the annual inflation gauge rose 3%, following a 2.8% increase in the previous period.
The official numbers are only quarterly so they produce a monthly number and as you can see things are warming up. That is not a little awkward if we now switch to what Reserve Bank of Australia Governor Michele Bullock told Parliament on the 22nd of September.
And since we last met with the Committee, the Monetary Policy Board has lowered the cash rate target – our key monetary policy tool – by a further 50 basis points to 3.6 per cent, following the 25 basis point cut decided by the previous Board in February.
As you can see it has cut interest-rates into this in spite of her claims on this front.
As I noted, the Monetary Policy Board conducts monetary policy with the aim of maintaining low and stable inflation and full employment. The Statement on the Conduct of Monetary Policy – which was updated in July – sets out our agreement with the Government that an appropriate goal is consumer price inflation between 2 and 3 per cent. To achieve this, we set policy such that inflation is expected to return to the midpoint of the 2–3 per cent target range.
So it is now back in inflation after having cut interest-rates which does not look good. It is at the top of its range if the Melbourne Institute is correct and inflation expectations suggest it will go higher and maybe by quite a bit.
This challenges a central banking standard as they have pointed to inflation expectations hundreds and indeed thousands of times in the Cost of Living Crisis. So we now see if they are yet another measure only used if they give the correct answer.
By contrast I did warn of trouble ahead.
Back in the 26th of June last year I posted this.
The money supply is not showing that things are restrictive and seemed to be suggesting another push. I can update that now with the April figures which were 0.4% on the month raising the annual rate to 5.1%. So if we look ahead 18/24 months for inflation to be running at 2% we would need growth of 3% and the latter does not look likely as we recall Australia is in a GDP per capita recession and depression. So there is a clear risk for inflation two years ahead.
It looks as though inflation is arriving on cue. As you can see economic growth has fallen quite a bit short of 3%.
Gross Domestic Product (GDP) rose 0.6% this quarter and by 1.8% compared to June 2024.
You could easily argue that the private-sector is growing more slowly than that.
Treasury had forecast in March that real government spending was on track to rise 6 per cent in 2024-25 – far higher than the 3.4 per cent average rate recorded in the two decades before the pandemic. ( Australia Financial Review)
On the surface Australia claims it is close to a balanced budget. But only by in a familar theme for public finances being rather economical with what it counts.
The figures do not include so-called “off-budget spending” in areas such as the Snowy Hydro project and loss-making assets such as the national broadband network and the Whyalla Steelworks. Off-budget spending will cost about $25 billion per year on average over the next four years.
If we did that we would by in jail. But as you can see my analysis based on the money supply was this.
Its gettin hot in here (so hot)So take off all your clothesI am gettin so hot, I wanna take my clothes off ( Nelly)
House Prices
These have been a traditional signal of overheating in the Australian economy as they have gone higher and higher. Although the official figures do not put it quite like that.
Household wealth grew by 2.7% ($470.1b) to $17,764.7b by the end of the June quarter. The increase in net worth was driven by strong increases in the value of land and dwellings, and financial assets. ( ABS)
Here is S&P Global.
Australian housing markets are gathering strength as we head further into spring, with September marking the strongest monthly gain for national dwelling values since October 2023. The Cotality Home Value Index (HVI) recorded a 0.8% increase in September, powered by robust growth conditions across the capital cities, where values rose 0.9% over the month.
On a quarterly basis, the national HVI increased 2.2%, up from a 1.5% lift in the June quarter and double the 1.1% increase seen over the three months to March. In dollar terms, the September quarter rise was equivalent to a $18,215 increase in the median dwelling value.
As you can see it is getting hot in here too as again we see a success for forecasting using the money supply. It looks as though it is everywhere.
Growth has once again become broad-based, with every capital city and rest-of-state region recording an increase in dwelling values over the month, quarter and most recent 12-month period. That being said, some divergence in the pace of growth is once again emerging.
Comment
Yet again we are observing a Policy failure by the Reserve Bank of Australia. It has cut interest-rates into both a house price boom and a rise in other inflation. This is confirmed by the official denial earlier today from the RBA Governor when giving evidence to Parliament.
Responding to a question from Greens senator Nick McKim on whether the Reserve Bank played any role in Australia’s housing price spike, RBA governor Michele Bullock said ‘the problem is the lack of supply relative to demand’. ‘It’s not monetary policy’s responsibility to look after housing prices’ ( The Guardian)
She does not now what her job is which is worrying and/or she thinks she can lie about it. Apart from them being a major signal they are in the inflation measure. But she is unlikely to be challenged too much in Parliament as the government has only just expanded its 5% deposit scheme with clear echoes of Help To Buy in the UK which simply raised prices.
If I now look at the Broad Money series then as of the latest data the annual growth rate is 6.8%. So the interest-rate cuts of the RBA look reckless and frankly so do forecasts of future cuts.
