OPINION: Smashing the demand for groceries in order to fix a supply side problem is a wrong-headed monetarist solution.
at the Reserve Bank board’s meeting on Tuesday, the bank will lift interest rates sharply to bring down the prices of groceries and everything else to prevent a wage-price spiral.It is not even clear which prices are falling and which are rising.
We don’t even have a good readout on how much of the inflation is transitory and how much is now embedded into people’s expectations. Rising electricity prices will be with us for several years as the system decarbonises and ageing coal-fired power stations are closed.But not everything is going up. The cost of transporting shipping containers is beginning to fall, as are the prices of many commodities. So, too, are house prices in most Australian states.
Moreover, the industrial relations laws are much more restrictive now than they were in the 1970s, limiting the ability of unions to take lawful industrial action. The official data is still showing real wages are falling, the rise in the wage price index for the March quarter of 2.4 per cent being well below the 5.1 per cent inflation rate for the same period.
Consider the folly of the monetary authorities saying they had solved the tomato shortage by smashing the economy, making lots of people unemployed and ensuring the remaining employed workers were so worried about the future that they thought it too risky to buy tomatoes anyway and increased their savings instead.
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