RBA blames Albo for inflation, more rate hikes

Here are the crucial passages from yesterday’s RBA minutes:

Members observed that the monthly CPI indicator had confirmed the Bank’s expectation that inflation had picked up further in July and August, and that it was broadly based. Overall, headline inflation was expected to be around 7¾ per cent and underlying inflation around 6 per cent over 2022. Although some of the supply-side factors that had contributed to inflation over the preceding year were expected to ease in coming quarters, items such as utilities prices and rents were likely to pick up further and add to inflationary pressures for some time.

…With regard to inflationary pressures, members noted that wages growth had not reached levels that would be inconsistent with the inflation target. Moreover, some further rise in wages growth would not necessarily be cause for concern, given the flexible and medium-term nature of the inflation target, so long as inflation expectations remained well anchored. Institutional features of the Australian labour market also made a sharp rise in wages less likely than in other economies, which would help smooth the cycle in wages growth until some of the tightness of the labour market lessened.

In under six months in power, the Albanese Government has made all three of these problems much worse for the future that the RBA is discussing.

On energy, it has allowed east coast energy cartels to import war-profiteering fuel prices into Australia. This is the direct cause of skyrocketing utility bills which, at current prices, will deliver a 3% CPI shock over the year.

On rents, the Albanese Government is in the process of stimulating a price blowoff by reopening the immigration floodgates while residential construction collapses:

The same policy mechanism will also crush wage growth before it can reach the RBA’s sustainable inflation thresholds.

The direct result of these huge policy errors is that the Albanese Government will deliver the largest fall in Australian living standards in 40 years and probably since the Great Depression:

As a quick aside, the next time somebody compares today’s inflation breakout with the 1970s tell them to jump off The Gap. Inflation in the 1970s was a bonanza for workers because wages massively outpaced it. Having a mortgage was a breeze.

In short, a series of Albanese Government policy errors is making inflation worse in all of the wrong areas while it suppresses it in all of the right areas. The end result is a reversal of twenty years of living standards gains in two-to-three.

The RBA is right to blame them for it.