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."

Monday, May 2, 2011

Minimum wages incorporating headline inflation

A couple of key commentators have hawked up materially in the last few days. Terry McCrann, like James Glynn (a must read) and Jessica Irvine, is now calling a June hike. He also canvasses the nontrivial risk that the RBA exercises the option of least regret, as a good inflation targeter should, and hikes on Tuesday:

Even so, arguably, the RBA should start raising rates next Tuesday as inflation is already above its target ceiling and we are on the threshold of the mother of all inflation-boosting resources booms...

It focuses on the "underlying" price rises; and it was those that rose by an higher-than-expected and worrying 0.85 per cent in the quarter. That's 3.4 per cent annualised.

Again, the RBA could live with a temporary blip above 3 per cent. The trouble is, it is already clear this is more than that.

When you drill even deeper into the CPI numbers, the prices of too many things are starting to accelerate - despite the price-cutting impact of the strong dollar and the fact that consumers are saving more than they have done since the 1970s."

Just as interestingly, the typically dovish David Uren has written two very hawkish articles today. The first, which is the headline in The Oz, notes that Treasury may forecast inflation above 3% in the next couple of years, which would be more hawkish than the RBA's already hawkish projections. The second, more important article, reveals that the Government believes minimum wages should be able to rise in line with cost of living pressures, which means that the RBA will not be able to completely discount the headline inflation results and risks a wage-price spiral. More specifically, Uren argues the RBA disagrees with economists who think the Bank will simply look-through the headline numbers as a temporary blip:

"THE government's call for workers to be fully compensated for rises in the cost of living makes it difficult for the Reserve Bank to ignore the one-off hits to prices caused by floods and political instability among oil producers."