Hold up… hang on a minute… we could have sworn that volatile items like fruit and vegetables should be discounted when looking at the inflation numbers.
Yet that, apparently has been the big driver behind the fall in inflation to 2.2%. This is the lowest it has been since 2005. Time to rejoice?
This isn’t the official number of course. That isn’t due out until next week. Until then the mainstream can bask in the glory of the victory over inflation, the fear of deflation and the potential for the Reserve Bank of Australia to drop interest rates below 4% at its next meeting in February.
So, has inflation been licked?
We would like to think it has been. Nothing would please us more to know that prices are not rising. We just have a funny feeling that we haven’t seen the last of it.
What is more frustrating is the way the mainstream press and so-called economists have been sucked in by the deflation furphy.
Who remembers statements like these when prices were rising?
“Rising petrol prices are just like a tax increase.”
“Rising food prices are just like a tax increase.”
“Don’t cut taxes, it will only increase inflation.”
“We shouldn’t take any notice of fuel and food prices because they are too volatile.”
Fast forward to today and it’s a whole different story. Rather than basking in the thought of prices being kept in check – or even falling – every last man jack of policy makers and media are hoping to relive the glory days of 2-3% inflation, and maybe even a bit of 3-4% inflation, just to be on the safe side.
But surely if rising prices are a tax increase and are to be abhorred, then why all of a sudden has the prospect of falling prices and the resulting ‘tax cut’ become equally feared?
The quick answer is “We don’t know.” We can only guess.
And our guess is that apart from the month leading up to elections governments don’t have to worry about what the general public (aka, consumers) think. The rest of the time the pollies are held to ransom by pressure groups. And I don’t just mean unions and charities, I’m talking about business pressure groups as well.
You only have to look at the fear in the politicians eyes at the prospect of a company going belly-up or laying off staff. Last Friday’s The Age newspaper ran a story with Julia Gillard pleading with employers not to get rid of “skilled staff.” We’re not sure if she means all the unskilled staff can get stuffed or not.
Why else would the government be so keen to prop up child care centres and car manufacturers? Because they know that dole queues may just effect their chance of re-election at the next poll.
So, when it comes down to a choice between inflation or better prices for consumers, inflation wins every time.
The message is to make the most of low interest rates and comparatively lower prices while we can.
Are Australian Banks Hiding Something?
It’s fairly easy for you and me to sit here and think, “don’t worry, it couldn’t possibly happen here.”
Maybe it will, maybe it won’t. But I tell you something, the news overnight of the UK government shoveling more cash towards the Royal Bank of Scotland is all starting to smell a bit fishy.
In fact, it is so fishy that I’m starting to smell a rat.
Remember that until recently the Royal Bank of Scotland was one of the largest banks in the world. For a time it was even the fifth largest company in Europe.
Now it is begging and squirming for government money. At the expense of existing shareholders who are being well and truly shafted by the injection of cash by the government.
We’ve asked before whether such a banking calamity could happen here. The consensus opinion seems to be ‘No.’ That Australian banks are in much better shape than US or European banks.
We’ll write more on this tomorrow. But until then, just think about this, it seems as though the new cash injection by the UK government was brought about by RBS giving guidance that it would make a full year loss of GBP8 billion (AUD$17 billion) and writedowns of GBP20 billion (AUD$44 billion).
Considering that in the previous financial year the bank made a net profit of GBP7 billion (AUD$15 billion) how can it be that a swing the other way has brought the bank to its knees?
Surely retained earnings from previous profitable years should keep the bank liquid.
Clearly there is much more to the story than is being made public. It makes us wonder how honest the Australian banks are being. They better not be keeping things under wraps, remember the short selling on financial stocks is due to expire next week.