According to outgoing Governor Lowe, inflation is corrosive and amounts to public enemy number one!

Here’s what Governor Lowe says the RBA thinks about the inflation.

Hint - we haven’t seen it’s likes for 3 decades - no one under 40 has ever experienced it, it’s the scourge of the east and west (and the middle).

Like, let’s blow it off the face of the earth, and pronto!

Thunderbirds are go, and all that………..

But then…….???

Here’s how Governor Lowe and his Board have steered monetary policy to achieve that goal, over the last 6 months.

🤦‍♂️

Gently raising rates at a pace of 0.125% or 12.5 basis points per month over a 6month period does nothing to tame inflation.

While it might achieve other agendas, interest rates are now at 4.10% but CPI is still at 6%.

Why?

It’s not the level of inflation that matters. It’s the rate of change that really matters because it’s that which regulates what households and businesses are willing and able to spend on goods and services (i.e., aggregate demand).

Slow and gradual provides too much time to recalibrate spending. It’s the proverbial boiling frog - where small changes are taken in stride - nothing to see here!

A percentage of households will enter mortgage pain, yes, that’s correct, but it’s small, and at the other extreme investors are getting riskless yield and CEOs are receiving $10m pay packets.

The wealth effects go straight into the economy.

I fear the RBA has missed the opportunity to destroy enough demand, within an appropriate timeframe, and that inflation will be with us for quite some time.

See you in the bakehouse.

Mike