Inflation exploding...house prices sinking...What will the RBA do?

[DanielG]

Interesting times. What will the RBA do? Either choice leads to economic hardship. Do they allow inflation to fuel food price increases but try and put a floor under housing or do they exasperbate the fall in house prices but try to curb inflation?

Interesting times we live in indeed. Opinions?

Correction: Inflation...not Inflatiotion LOL

 

[oracle]

Interesting times. What will the RBA do? Either choice leads to economic hardship. Do they allow inflation to fuel food price increases but try and put a floor under housing or do they exasperbate the fall in house prices but try to curb inflation?

Interesting times we live in indeed. Opinions?

Correction: Inflation...not Inflatiotion LOL

I think the RBA will keep increasing interest rates if inflation gets out of control and the unemployment rate stays low irrespective of what the house prices do.

But if house prices do suffer I wouldn't be surprised if the Government steps in with some incentives.

Cheers,
Oracle.

 

[Ausprop]

inflation will result from a hot economy. a hot economy = demand for houses. I don't see a disconnect, yet. I still think there could be significant fall out from a renewed 2 speed economy.

 

[DanielG]

Only parts of the economy are hot...one sector. Retail in the gutter. Houses on a downward trajectory. Food, enery, oil...UP!

Ausprop...economy can not be hot is prices in houses are slumping...doesn't make sense.

 

[lizzie]

The major two drivers in the recent inflation figures were fresh food and fuel - food driven by a shortage caused by recent floods, farmers restocking after drought etc ... and fuel due to uncertainty in some fuel producing areas (although we apparently don't buy fuel from Lybia, the unrest drives up the international price).

Unfortunately food and fuel are not products one has an option whether or not to buy ... they are necessities to a functioning life, unlike TV's or travel etc. Personally I like eating - it keeps me alive - and fuel gets hubby to work so he can pay the mortgage. Rather essential.

I am sure the RBA are aware of these two factors and I believe (or hope) they will wait until the next release of figures so see if it is a blip or a trend before pushing up, dropping or stabalising rates.

 

[buzzlightyear]

RBA looks at the trimmed mean CPI figure not the more volatile headline rate. The trimmed mean is at 2.3%, which is less than what was experienced throughout last financial year.

Once we have had the effects of Yasi and floods have worked their way through the system, the food price increases aren't likely to keep the same pace of increases. eg fruit increased 14.5% compared to a 5.7% fall in the same time last year. vegetable prices increased by 16.0% compared to a 10.3% increase in the same time last year. Therefore, the headlines make it seem like inflation armageddon is upon us when in fact this is not quite the case imo.

And thank goodness for the strength of the AUD because the 8.8% increase in automotive fuel would have been substantially more if it hadn't appreciated.

 

[devo76]

I see a continued attempt to walk the knife edge. Slight adjustment either way is possible. I don't think we will see big moves unless the poo hits the fan.

Down if property really starts to slide .
Up if inflation starts to take off.

I think they are hoping to continue the delicate balancing act .

 

[Ed Barton]

Interesting times. What will the RBA do? Either choice leads to economic hardship. Do they allow inflation to fuel food price increases but try and put a floor under housing or do they exasperbate the fall in house prices but try to curb inflation?

Interesting times we live in indeed. Opinions?

Correction: Inflation...not Inflatiotion LOL

i believe the RBA is more concerned about inflation than a small dip in house prices on the back of recent large increases.

 

[Aaron Sice]

stagflation is here as predicted.

time to buy.

 

[lizzie]

soon ... soon ... just have to wait for reality to hit the vendors first.

 

[Ausprop]

Ausprop...economy can not be hot is prices in houses are slumping...doesn't make sense.

agreed. judging by the noises Swan is making re a tough budget and the govt exiting aggregate demand it seems clear to me that the treasury think the economy is about to get hot.

It's quite simple in my mind - either the economy is gathering momentum or its not. the 'experts' seem to think it is, however I think it is fair to say that if the economy slides then they won't put up IRs just because bananas are expensive. And if IRs go down it should be good news for housing, especially as unemployment is quite low

 

[Ocean Architect]

This whole thing is a scam. The banks have cleaned up by getting all of these homeowners into debt. Aussie savings are at ridiculously low rates. The only ones who lose from high inflation are savers (hardly any of us realistically) and lenders (the banks themselves). Hence, I welcome inflation, both in terms of the prices of goods/services, and in terms of wages, which would help unwind excessive housing prices by preserving their nominal value but reducing their real value. The real reason that rates will go up is simply to loot the public a little bit more, and preserve the banks - even though the public has guaranteed the banks and will bear the brunt of higher interest rates.

This is class warfare, imo.

 

[Belbo]

What on earth do you mean by that, OA?

Class warfare? As in ruling class vs the under class? Banks vs 'the people'? Middle class vs the lumpen-proletariat?

Come on! You're being unrealistic.

What we have here is a simple case of impending inflation. It's largely being imported. There's no conspiracy or class warfare about it: It's a fact, and the RBA is obligated to repond, whether it likes the consequences for the average mug in the street or not.

You're ascribing motives where there are none: No banker or RBA govenor wants to 'loot' lenders. Banks have to make a sensible return for their investors and the RBA has to make sensible calls on the direction of the economy.

The only scam going down is political. The foolish left (there is a sensible left too, as there is a sensible right. I accept) have got a foot into goverment policy. But that's not the game the RBA and banks play. They're not petty class warfarists. They're working to keep the game sane!

 

[Ocean Architect]

What on earth do you mean by that, OA?

Class warfare? As in ruling class vs the under class? Banks vs 'the people'? Middle class vs the lumpen-proletariat?

Come on! You're being unrealistic.

What we have here is a simple case of impending inflation. It's largely being imported. There's no conspiracy or class warfare about it: It's a fact, and the RBA is obligated to repond, whether it likes the consequences for the average mug in the street or not.

You're ascribing motives where there are none: No banker or RBA govenor wants to 'loot' lenders. Banks have to make a sensible return for their investors and the RBA has to make sensible calls on the direction of the economy.

The only scam going down is political. The foolish left (there is a sensible left too, as there is a sensible right. I accept) have got a foot into goverment policy. But that's not the game the RBA and banks play. They're not petty class warfarists. They're working keeping the game sane!

I very much disagree. I think that the banks knew precisely what they were doing when they loosened up lending criteria a few years ago and tightened it up recently. They knew that it would lead to an explosion in property prices and indebtedness that was unsustainable, and they knew that they could get the government to bail them out whilst squeezing those late into the game (precisely what is happening). I was being offered $500k as a no doc loan (ie outright lies, unchecked income) - that isn't sensible banking. It's predatory banking. The inflation wasn't only imported - it was created.

Australia is a mild case (so far) but if we look at the actions of the US federal reserve, Ireland, Greece etc what we are seeing is that the people who created a lot of financial turmoil are being bailed out by the government, which gets money from the people, so that they can lend back to the people and impose "austerity measures". Increasing interest rates is the same thing - more and more of people's income is going towards mortgage repayments as a proportion of income. Home owners still have a landlord - the bank.

I get quite upset about the fact that the aussie government has guaranteed the debt of the big 4 - I run a couple of businesses, why doesn't the government guarantee my debts? To me, it stinks of corruption and deliberate strategy. The people at the top vs everyone else.

 

[sammyla]

What will the RBA do?

RBA can only do one thing.and that one thing is lifting rates.the question is not if RBA will do it but when.i say July.

 

[Belbo]

I very much disagree. I think that the banks knew precisely what they were doing when they loosened up lending criteria a few years ago and tightened it up recently. They knew that it would lead to an explosion in property prices and indebtedness that was unsustainable, and they knew that they could get the government to bail them out whilst squeezing those late into the game (precisely what is happening).

Listen to yourself. That's conspiracy theory stuff!

Fair enough, things haven't gone down as we'd have liked, but you're blaming the victims here. The GFC was an imported crisis too! The Oz banks didn't plan to stiff us with loose credit in preparation of the GFC. You're reading history backwards to say such a crazy thing, honestly.

I accept that every other country stuffed up their banking, but we didn't. Our banks used easy credit remarkably prudently, and kept up lending standards well beyond world's best practice prior to the crisis. How the heck did we come off so well unscathed otherwise?

 

[Ocean Architect]

Listen to yourself. That's conspiracy theory stuff!

Fair enough, things haven't gone down as we'd have liked, but you're blaming the victims here. The GFC was an imported crisis too! The Oz banks didn't plan to stiff us with loose credit in preparation of the GFC. You're reading history backwards to say such a crazy thing, honestly.

I accept that every other country stuffed up their banking, but we didn't. Our banks used easy credit remarkably prudently, and kept up lending standards well beyond world's best practice prior to the crisis. How the heck did we come off so well unscathed otherwise?

A conspiracy is a secret plan between more than one person. Price fixing is a conspiracy. Lots of things are conspiracies. And it isnt a conspiracy theory if it's actually happenning.

The reason Australia has done so well is because we have relatively stringent lending criteria (our version of the Glass Steagal act wasn't wiped away the way the US version was) and a currency based commodity. If it weren't for china buying our stuff up as fast as we could dig it out of the ground, we would have been in recession a long time ago.

I don't at all see banks as victims. They're colluders. GFC or no GFC the big 4 posted huge profits. Their executives receive massive salaries. Regular aussies, though, are feeling the pinch.

I think you have a blind spot, Belbo. I think that you think that other people are as decent as you are. You don't get to the top in the banking game unless you're, ah...morally flexible.

 

[Belbo]

Individual moral flexibilty and what have you else aside. The machinery of banking has worked properly here in Australia. It didn't overseas.

You're tarring all bankers with one brush. Overseas they were all lunatics (Iceland, Ireland, USA, et al), but here in Oz we only had self-serving scum. There's a massive difference! Okay, they got paid a lot, but they did their jobs well. Surely that's now self-evident?

Yes, we'd be in the deepest hole without China, but not because of the banks. The banks can't restructure our economy at their behest. They have to take what's offered, just like any other business.

Unless you think the central-command economy model of bank finance-by-dictat makes sense, what the heck else could our banks have done? They did their job and the world economy got rough, so they trimmed the sails. What else could they have done in our better interests?

 

[Ocean Architect]

Individual moral flexibilty and what have you else aside. The machinery of banking has worked properly here in Australia. It didn't overseas.

You're tarring all bankers with one brush. Overseas they were all lunatics (Iceland, Ireland, USA, et al), but here in Oz we only had self-serving scum. There's a massive difference! Okay, they got paid a lot, but they did their jobs well. Surely that's now self-evident?

Yes, we'd be in the deepest hole without China, but not because of the banks. The banks can't restructure our economy at their behest. They have to take what's offered, just like any other business.

Unless you think the central-command economy model of bank finance-by-dictat makes sense, what the heck else could our banks have done? They did their job and the world economy got rough, so they trimmed the sails. What else could they have done in our better interests?

You have Stockholm Syndrome. You've fallen in love with your captor. We don't need the banks. The banks don't help us - they feed off us. The only model of banking that actually works properly is a government backed debt free currency akin to that issues by the original commonwealth bank during WW2.

The best thing that could happen to this society is for the banks to be abolished, and for us to return to that model. The only modern close comparison to that model is that of the Bank of North Dakota, which, by the way, is the reason that Dakota is the only US state not to be insolvent.

 

[Belbo]

North freakin' Dakota? Where the heck did that come from?

I confess a certain ignorance about banking, but I'm utterly out to lunch on that particular pinnacle of international banking practice. WTF?

(If you can't give me a 3000-word essay on that by Monday, young Ocean, you'll be looking at a 'D' in Applied Microtrivia.)

Abolish banking? Why would we want that?

Banking was invented because there was a need - and not a usurious conspiracy - wasn't it, Herr Architect?