The Reserve Bank will soon have to come clean on just how bad the inflation outlook really is. This will be a matter of shame for the RBA – imagine overshooting next year’s target (a range of 2-3%) not just by 0.25% (which has been admitted), but by a monstrous 5% inflation rate. 5% is a conservative outcome of a continued rise in wages of 4%, a collapse in productivity growth to zero and a move to a weaker – more export-friendly and import-repellent – exchange rate of say US$0.70.
No amount of “structural reform” that might be introduced this year can prevent the inflation already in the pipeline. The critics are beginning to question the wisdom of Alan Greenspan, a subject Henry Thornton is also monitoring as a vital issue for global economic developments.
Read the full article here.