The past few days have seen a stoush erupt between Reserve Bank of Australia (RBA) governor Michele Bullock and the Albanese government over the causes of Australia’s inflation.
Bullock warned that excessive government spending was contributing to prolonged inflation, whereas Treasurer Jim Chalmers and Prime Minister Anthony Albanese disputed the notion that the government was fuelling inflation.
Chief economist at IFM Investors, Alex Joiner, has produced a series of charts showing how the RBA’s monetary tightening has worked to smash the private sector economy:
However, public demand has offset this contraction in the private sector:
The situation is similar with respect to jobs.
The latest Labour Market Account from the Australian Bureau of Statistics (ABS) showed that the “market sector” created only 6,000 jobs in the year to March, versus 218,000 jobs in the Healthcare & Social Assistance industry (mostly NDIS-related), 62,000 jobs in the Education industry, and 36,000 jobs in Public Administration and Safety industry.
Hours worked in the market sector also declined by 26.8 million over the year to March 2024, whereas solid growth was recorded across government-aligned industries.
That said, Alex Joiner also showed that state governments have also helped to pump demand across the economy. Thus, excessive federal government is not solely responsible for pumping inflation:
I will add that the federal government’s record immigration program has also juiced demand and helped push inflation higher.
This is most apparent in the housing market, where rental inflation, which is one of the main components of CPI inflation, has been running at extreme levels despite federal government subsidies:
The end result is that CPI inflation is higher than it otherwise would be, and the RBA has been forced to hit the private sector harder to offset the growth in demand in the non-market, government-aligned industries.
I discussed these issues in my latest interview with Tom Elliott on Melbourne’s Radio 3AW.
