The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Sunday, May 8, 2011

Top interest rate strategist calls wage-price spiral and 4% core inflation

This is an excellent note written by a highly respected interest rate strategist at a large investment bank. In short, he thinks inflation is going to rise faster than the RBA projects (already very high), and that Australia's more rigid labour market combined with perverse union incentives to crystallize wage claims--in what will likely be the last term of this Labor Government--mean that Australia will shortly face the spectre of genuine wage-price spirals. This in turn means higher interest rates than the market currently expects. His views very much echo the positions articulated here over time. Here is a snapshot:

"All of this suggests to me that the structural and political setup of the economy has become much more inflationary over the past few years. If any country is going to have an inflation breakout, it is Australia over the next few years. The RBA’s job is to squeeze the economy tightly enough so that this cannot happen. That is going to require restrictive rates – possibly very restrictive rates."