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."

Tuesday, January 25, 2011

Hmmmmm another key commentator warns of early rate hikes...

I've never really known the SMH's Jessica Irvine to write about inflation or RBA policy before. Now she has found a voice, warning of earlier than expected hikes here. And this is what ICAP's always-interesting Adam Carr had to say today:

"[T]he other things to note are that 1) we can’t keep relying on a 9 per cent increase the AUD each quarter to soften prices. Also consider 2) the fact that inflation, or excess inflation, is generally only driven by a few key components. In the Australian context, inflation is, generally speaking, driven by food (including booze and smokes), housing (rents, house purchase, and utilities), health and education. Normally about 80 per cent of the gain over any time period is driven by these components, noting that they account for around 50 per cent of the basket of goods surveyed. Throw in fuel, during times of crude price rises and around 90 per cent of the increase can be explained by 55 per cent of the CPI basket.

Here’s the thing. I don’t reckon that price trends in any of these components have really changed. I mean I haven’t seen any evidence of that. We saw some sign of that this quarter with price increases for food, housing and fuel. But the series doesn’t usually show a steady consistent increase in each quarter – the numbers are volatile. Missing this quarter were coincident increases in the highly seasonal education and health and utility components. It seems that we’ve just been lucky in reality, that when utility prices or what have you have surged, we’ve either had soft food or a drop in fuel prices or some other oddity. But our luck is going to run out.

Think about what’s happening to health costs, costs of education, food, fuel etc. The key drivers of CPI. They are going up. I don’t think anyone would argue against that. Now think of what happens when they start rising together, as they did from 2006-08. It’s not pretty."