Inflation expectations dump(ed)

Here’s an important data point I missed last week amid the market madness. From the Melbourne Institute:

The median expected inflation rate, reported in the Melbourne Institute Survey of Consumer Inflationary Expectations, decreased to 2.7 per cent in August from 3.4 per cent in July.

According to Dr. Michael Chua, a Research Fellow at the Melbourne Institute, “Consumers have lowered their inflationary expectations this month. This may be a reaction to the waves of negative news − there was news about “plummeting” share markets following the United States credit rating downgrade, news about contracting retail sales, and news about the RBA lowering their GDP growth forecast for 2011.”

Here is a chart of long term expectations:

That’s certainly a trend break and is another blow to any expectation of an expanding wage/price blow out. Another data point indicating rates have peaked, for now at least.

We might also observe that if the measure of inflation expectations is some kind of proxy for consumers expectations of growth then optimism has just taken a blow, as you’d expect. It will be very interesting to see the actual effects of consumption.

P.S. The other thing you might ask is, after 2000, what on earth was Ian Macfarlane doing?

Houses and Holes
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  1. You mean why wasnt Macfarlane raising rates in the midst of such rampant inflation?

    If they actually factored in house prices properly to the CPI – then the quesrtion has to be asked why rates have been so low throughout 2000’s when house price inflation was rampant.

    Glenn Stevens keeping rates at emergency levels despite property prices booming again in 2009 is another example of how the RBA are the most useless and evil public servants to ever grace the earth (throw in the fact that the RBA staff have been found to invest in property more then any other employee group – more than RE agents even) and you have yourself a key aspect of the Scam of the Century..

    • To repent for his sins, Glenn Stevens also went on national Bogan breakfast show and told people that housing may not be the path to riches.
      We are too dumb by half to listen.

      • When did he do this Mav?

        Was it after house prices had climbed 150% in 10 years and private debt levels at all time highs?

        Talk about a$$ covering!?!?!

        Why doesnt he talk about it in his cryptic speeches that MB readers fawn over?

        Its the number 1 facing the RBA yet they barely mention our private debt levels and the relationship between credit growth and house prices!

        • Come on!! if Glenny/RBA board are more explicit, our big 4 bank would mysteriously (not for MB readers) develop “liquidity” problems that would make Lehman’s problem and recent Societe Generale issue look like a tea party.
          It isn’t the job of the RBA to send the price signal that the situation for the banks is no longer tenable, that is the job of the market – share and bond market. But the bond market and the share market (and rating agencies) are dysfunctional and keep backing up our banks, relying on an implicit guarantee from the government.

        • RBA’s current monetary policy is set to ensure HnH’s invention – disleveraging – become true.
          RBA has basically dipped our banks and the mega mortgage mugs in liquid oxygen – the liquid won’t let them live and the oxygen won’t let them die.

  2. Bubbles MacFarlane was J.Howards accomplice and bagman.

    Howard was all the way with G. Bush in the “ownership society” bollox. An extension of Howards idol pigiron Bob’s era of all the way with LBJ.

    This gave us debt without the earnings. The wealth effect-that is the temporary effect without lasting prosperity. The mining uptake that we were all expecting had not kicked in yet.

    The arse-about economy. The cart was placed in front of the horse. This led to serious structural damage. First round of mistakes goes to Howard/MacFarlane/Henry camp.

    We all know about compounding interest. Yet no one seems to factor in compounding mistakes. Compounding mistakes has a multiplier effect on unintended consequences, among other damaging effects.

    Labor under Rudd and Gilliard are the drivers of 2nd round, compounding mistakes. Ditto the RBA under both MacFarlane and Stevens. The public services were totally complicit under Henry and other noteworthy (notorious?) consultants and advisatory shills.

    So the RBA under our million dollar public servant is more interested in whipping the kids in the cart than in putting the horse in front of the cart.

  3. Why doesnt anyone (journo, politician, blogger) ask whether Glenn Stevens thinks Australia’s house price increases from 98-2008 were good for the economy and whether he thinks monetary policy has failed to achieve price stability for shelter in this nation?

    It seems so obvious to me that this is the primary cause of not only Australia, but the whole worlds economic woes. Yes you have Europe and the welfare state going bankrupt and you have other idiotic Government initiatives…but the worst economic policy over the past two decades has been the policy of fuelling house price bubbles funded by massive accumulation of private debt.

    Everything else in Australia is just a sideshow…this is THE issue, this is why the RBA deserve to be sacked ASAP and we rething our whole economy.

    Forget mining taxes, regulatory burden…or any other issue than dominates the media and public’s attention – the housing bubble and how it was allowed to form is the primary source of our vunerability as a nation. It was also the primary reason the US and UK (plus IReland and Spain) are in such an economic mess.

    For those on MB that seem to want to ignore inflation or downplay its risks – I ask you, what is the difference between having your wages halved…of having prices double?

    Because from what I can tell – people seem to be a lot more willing to have prices double rather than their wages halve?? Would I be right in this assetion?? and if so, why?

    • Stevens would te3ll you from a holistic policy perspective it is good.

      Young people paid overs for housing, making baby boomers wealthier than their efforts or abilities warranted.

      This can reduce the old age pension.

      How Gen X and Y will be compensated for over 25 years of excess debt servitude, not their problem, it can be dealth with then.

      But trips to europe every 2 years in retirement for baby boomers… mission accomplished.

  4. SeanM I think you have it pretty right but the problem goes further back than Howard…like go back another 40 years before Howard even came one the scene.

    Re inflation
    No one is actually asking the question…what is the real rate of inflation in Australia? Even leaving aside the house price inflation raised issue raised here which is part of the issue. How about we try to strip out the deflation coming from deflation out of China and see what is REALLY happening within Australia. Australia has been in the peculiar position From an historical perspective)that the greater its CAD, the greater the debt, the lower the inflation number…damn strange way to run an economy.