RBA Governor Phil Lowe and I both started full time work in 1980. So we both have decades of experience, he in the RBA, me in private business across many sectors.
We both cut our inflation teeth in the 1980’s and 1990’s. What is vastly different from those two decades to today’s inflation is that embedded wage costs are absent. The bulk of today’s inflation is that it is imported and has just been in Australia in the CPI numbers for 5 minutes.
The imported inflation is from energy costs, shortage of cars (mainly chip shortage induced), shortage of timber and international freight costs. The last three are already coming down quickly, The first will resolve as Ukraine resolves.
The only local factor increasing inflation is food costs of which the biggest cause is flooding and storms in the various food bowls and imported picking labour. This will resolve within 6 months and importing picking labour is within the remit of Albanese to solve and quickly.
So the sledgehammer solution of raising interest rates will end up doing for more damage than the damage alleged inflation ( which in Australia is mainly transitory) is doing.
The one thing that will entrench higher inflation in Australia is a wages break out that is not accompanied by a productivity improvement. I fear for that Labor will achieve a wages increase an no productivity gain. Then we will get in a mess and in three years time Albanese, Chalmers and Gallagher will have spinning heads looking for someone to blame.
