Inflation, the RBA and Governments

More pressure on the economy, on decision makers, on us all!

Debt, inflation, interest increases and volatilities have been covered in recent editions of our Letter from Melbourne and Letter from Canberra. 

We are working on more effective logistics pathways from Tasmania, for different sized shippers and for different market segments. We are also evaluating a new freight service. Detailed analysis is required to factor and forecast the extent of ongoing supply chain fluctuations. The price of everything is on the way up!

Do we understand current and longer term impacts of increasing uncertainty, rate increases, inflation and the ultimate impact this could have on confidence, jobs, investment and cost of living?

How do we help business? Do we understand the sectors of the economy most impacted, along with those sectors doing well from volatility and high demand? How do we help the Reserve Bank control inflation quickly?

The RBA’s now apparent misreading of inflation profiles from large government stimulus, quantitative easing and incorrect future guidance on ultra-low interest rates out to 2024 now leave the Reserve Bank nursing losses and the economy impacted. The current focus should not be on decisions the Reserve Bank made during Covid.

Globally inflation is increasing fast, so are interest rates. Volatilities from this alone are big. Add the ongoing Ukraine war with a possible escalation, China’s ongoing Covid lockdowns, the energy crisis in California and Europe as well as the ongoing impact from supply chain disruptions and we have a very uncertain outlook in our own markets. The Australian dollar is getting weaker, further pushing up the cost of commodities and imports while helping the economy with extra value from exports.

Australia needs to look at an energy self-sufficiency strategy. As a longer term example, electric smaller vehicles and green hydrogen fuelled large vehicle transport could mitigate the ongoing impact and risk from OPEC decisions and oil price fluctuations. This is real, it needs collaboration and investment now!

Short term we need governments to be brave, reduce debt, halt stimulation, manage wage growth and reduce cost of living. We must increase migration to reduce skill shortages and maximise productivity. Industries need growth and retention along with minimum COGS and maximised competitive positions.

The Reserve Bank needs the tools and ability to manage Australia’s inflation levels. Australian governments need to support the Reserve Bank in controlling inflation. 

Rhetoric needs to be matched with controls and tight budgets. Reduced spending should be paired with optimised public investment in key services. This is not the time to risk energy supply or introduce industry wide wage bargaining. Next months Federal budget should not add more fiscal stimulus that results in more inflationary pressure and higher interest rates. The risk of a hard landing for those with mortgages and their likely changes in debt/equity ratios is already too high.