The Smiling Treasurer: Inflation Manipulation?

Dr Jim Chalmers, or The Smiling Treasurer, as I like to call him. Yesterday, he was talking about the inflation figures and smiling from ear to ear. He said, “These new numbers show that inflation is at its lowest in almost four years. Inflation at 2.8% is the lowest in almost four years. We are making welcome and encouraging progress in the fight against inflation.” The thing is, he was smiling like an idiot throughout the entire speech. I don’t mean to be cruel, and I’m not calling him an idiot, but it was so artificial. It was like somebody told him to smile more when he was giving his speech. It just seemed put-on. It seemed fake. Look, I’m all for positivity and optimism, but this performance seemed a bit over the top. And I think I know why. Although the 2.8% figure is indeed in the Reserve Bank’s 2-3% target range, the way the Government got there was a bit, “manipulative”, let’s say. I’m not accusing the Treasurer of lying, but I think this whole smiling thing was there simply to feign success, to spin the results (well, he is a politician after all). But all economists, and himself, know how these results came about.

This is the Australian Bureau of Statistics latest Consumer Price Index report released 30 October. Yes, the headline inflation has indeed fallen to 2.8%, but this includes lots of volatile and temporary price changes. The report even mentions this: “The major reason for lower CPI inflation was due to a fall in prices for electricity and automotive fuel.”

For example, in Brisbane, electricity prices have gone down almost 93%! Is that because of all the new solar panels and wind turbines? No! It’s because the Government have been giving you rebates. In Queensland they gave us a $1000 towards our electricity. Also in Brisbane, urban transport fares have gone down 30%! Is that because of all the battery-powered buses? No! It’s because the Government gave you 50 cent fares in Queensland. It turns out inflation figures can be manipulated when the Government hand out free stuff. Well, free, I say free, but we all know there’s no such thing as a free lunch. In this case, it’s taxpayer money and future debt that they’re giving us. Aren’t they kind?

Here’s the Electricity Index over the last year. If you include the rebates, yes, electricity prices have gone down, dramatically! But if you don’t include the rebates, that is, the underlying electricity prices, oops, they’ve gone up! But with a magical wave of the treasurer’s wand, Jim Chalmers has made electricity inflation disappear! Obviously, we all know this is only temporary. There’s no way the Government can continue paying our electricity bills for us in perpetuity.

In their Main Contributors to Change section, Housing fell 0.1% in the last quarter. Housing crisis solved, right? No! Under Housing Group, utilities fell 7.6%, driven by, you guessed it, Electricity (-17.3%). If you look under Property Rates, property rates rose 4.9%, the largest rise since 2014! Perhaps the Government should pay our property rates, too!

These are insurance prices. What do you think happened to them? They went up, of course, by 14%! Up and up it goes. The problem with insurance, you kind of have to pay it. Sure, some people don’t get car insurance, or reduce their cover (like I’ve done), but house insurance you can’t really avoid. You’re slugged with this extra cost every year.

Of course, rents keep going up pretty much across the country, with an average inflation of 6.7%, well above the headline inflation of 2.8%. Canberra being one of the notable exceptions with only minimal rental increases. Again, like insurance, people who rent can’t escape these cost increases, unless, of course, they move farther away from the big cities, which, of course, isn’t always an option.

They always tells us to eat healthily, but the price of fresh fruit and vegetables continue to skyrocket at 8.6%. Artificially cheaper electricity hasn’t seemed to have negated that.

So yes, the headline inflation figure is 2.8%, but when we take into account that electricity prices were artificially reduced, and remove other volatile price changes such as petrol, the so-called trimmed mean provides a more authentic view of underlying inflation, which currently sits at 3.5%, still above the target 2-3% band.

Look, obviously, I’m not an economist. This is just an amusing interest of mine. Perhaps the Treasurer can fool Joe Public with his all-smiles persona, but he ain’t fooling the Reserve Bank. They’re not going to buy into any of this artificial smiling and electricity prices. They’re going to look at the unmanipulated figures. If those figures are still outside their target range, then don’t expect an interest rate cut any time soon.

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