There are two major features of the gas cartel in Australia.
First, it is unimaginably destructive economically.
Second, it is unimaginably invisible in public discussion.
Chris Joye gives us a nice glimpse of both:
With inflation temporarily falling into the Reserve Bank of Australia’s target 2 to 3 per cent band, and the US Federal Reserve almost certain to start cutting in September, Martin Place will come under pressure to ease the cost of capital.
While the RBA governor Michele Bullock has surprisingly reintroduced the discredited “forward guidance” of her predecessor by trying to rule out rate cuts this year, financial markets are betting that she will be compelled to chisel the target cash rate 25 basis points lower by November.
Recall here that the RBA judges that inflation will be about 0.75 of a percentage point lower over the 12 months to September primarily due to government subsidies, but then give back these gains via commensurately higher inflation over the 12 months to December 2025.
A sharp re-acceleration in inflation next year could be exacerbated by rampant government spending. Speaking on a Portfolio Construction Forum panel during the week, I was struck by how the discussion concluded with a consensus that capitalism is at risk of cannibalising itself.
This analysis is both prescient and barmy.
Yes, the RBA is fighting the good fight to force the government to take its inflationary energy failures seriously, but nobody in his or her right mind should expect it to win, itself least of all.
The RBA’s forward guidance is based upon the idea that energy bill rebates won’t be rolled over and expanded. This notion is betting on politicians abandoning their self-interest.
The history of such rebates is that they become embedded and grow. Look at the range of toll rebates on private roads around the country. No one has ever been removed.
Does the RBA seriously think that card-carrying policy poltroon Jim Chalmers, whose fear of the gas cartel has already wrecked the economy and trashed the government, will remove his energy rebates in 2025 or ever again?
Equally, if a Coalition government is elected, with its history of gas cartel grovelling, will it want to jump into power riding massive utility bill hikes and ruling out rate cuts? No!
Even if gas rices fall, and electricity prices with them, the rebates will likely stay in place!
I admire the RBA’s stance but, once again, it has stuck its head in the forward guidance noose at just the wrong moment.
The hand of the rope is the gas cartel and the RBA is going to hang.
