Demand isn’t the big problem for inflation – it’s external factors, including companies that use inflation to increase profits.
The lower-than-expected inflation result of 6.1% for the year to yesterday’s June contains important information about causes of inflation — and the glaring lack of any way in which it can be controlled by monetary or fiscal policy.
The obvious examples are gasoline and food. Both are rising not because of high consumer demand, but because of external factors. “The CPI’s automotive fuel series hit a record high for the fourth consecutive quarter,” the ABS said yesterday. “Fuel prices rose sharply in May and June, after falling in April due to the fuel tax cut.” Global energy prices and especially oil prices are well beyond the control of the RBA and that of treasurer Jim Chalmers.
So is the weather — food prices have risen thanks to the flooding and heavy rains along the east coast and the surge in grain and oilseed prices following the invasion of Ukraine.
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