Does anyone understand the economic thinking here
 

Were told to expect another interest rate rise and then another one in februrary, which makes 7 in 2 years.

Latest reasons given in todays australian newpaper, food has soared another 9.9% in the last quarter :eek: fruit has soared another 20% in the last quarter. What sort of a mess are we in to have price rises like that :scared:

So then everytime the cost of living soars we are told interest rate rises will make the consumer tighten their belts. Given most of these reasons for the rate rises are essential consumer items, interesting thinking.

Doesnt gel with me, interest rate rises get passes on, prices rise again, creating an outlook of never ending price and interest rate rises.

The countries in its 6th year of drought none of this helps that problem either.

Another aspect is this is already affecting the housing market, yet the government is so out of touch its still saying there is a trade shortage, not in the housing industry theres not ! Plenty of tradies out of work now.

Re: Does anyone understand the economic thinking here
 

Economics has never been easy to comprehend at the best of times, but then with a PM who, as Treasurer told the general public that he failed Maths AND Economics at high school, well......... :rolleyes:

Interest rates are still comparitively lower than they were 25 years ago.

Re: Does anyone understand the economic thinking here
 

If it's all a bit too much, I guess you could always come back to the UK - where domestic energy prices have nearly doubled in a mere three years.
Beeb.

What sort of mess is the UK in to have prices like that?

Re: Does anyone understand the economic thinking here
 

[QUOTE=Vash the Stampede]If it's all a bit too much, I guess you could always come back to the UK - where domestic energy prices have nearly doubled in a mere three years.

Yes, our gas direct debit has just increased from £28 to £45 per month. We were not in arrears and we are tight! :confused: ...WTF!?

Re: Does anyone understand the economic thinking here
 

Before we came out, our Gas direct debit was £38 per month and our electricity was £97 a month!! :scared:

Re: Does anyone understand the economic thinking here
 

What on earth has the price of fuel in the UK got to do with economic policy in Australia? Will you please stop trying to turn every discussion into UK v OZ.

Back to the original point, Jim and I were talking about this last night. Prices of basic food items have risen dramatically so that people are now struggling to afford them and are left with less money in their pocket at the end of the week. So by some perverse logic, its likely that the central bank will hike up interest rates leaving people with even less in their pocket. :confused: I actually passed A level economics and it still makes no sense to me.

Jane

Re: Does anyone understand the economic thinking here
 

Well said. After nearly a year here, we are still dipping into our UK savings to survive here as it it - we just can't believe the cost of living here is so high, compared to our wages. It isn't going to get any better in the near future with all the talk of food price increases because of the drought. We have a big fat minus at the end of each month! :(

Re: Does anyone understand the economic thinking here
 

Have you not all seen the record profits Coles and woolies have been making....

Re: Does anyone understand the economic thinking here
 

With lower interest rates - consumers tend to borrow more to go splash out on all those luxury goods such as plasma TV's, cars, designer clothes etc. This fuels inflation (supply Vs demand etc), which in turn increases wage demands as people want to keep pace with the cost of living, leading on to higher costs for employers, passed on to consumers etc etc.

By increasing interest rates - people will borrow less, use the money they have to repay debts and dampen demand.....thereby 'eventually' reducing prices.

Mud and clear spring to mind?

Some light reading. :D

Re: Does anyone understand the economic thinking here
 

Fine in theory, but in this case, its the rise in the prices of basic food costs thats fuelling the inflation, not luxury goods.

I suppose its one way of fixing the obesity problem, though! People have to eat less because they can't afford to buy food. :D

Jane :)

Re: Does anyone understand the economic thinking here
 

I'm not an economist, but doesn't the increasing cost of fruit and veg have more to do with reduced supply than increased demand?

I understand the need to raise interest rates if there's excessive demand causing the price of goods to rise, but if the rise in the CPI is caused by the drought, or by external factors such as oil prices, I don't see what raising interest rates is going to do.

Hey ho ...

Re: Does anyone understand the economic thinking here
 

The restriction of supply is the key issue.

I wonder if there will ever become a point when Australia realises that the quarantine laws (which prevent free markets from really working) are a luxury which it just cannot afford?

(Or when potato farmers in WA just revolt and say that they've had enough of being controlled by a central supply board and will just sell to whoever they want?)

(Or when independent fuel retailers just undercut the big players and don't have to tell anyone about it)

(Or when everybody and anybody in WA can sell whatever they want, when they want without being regulated)

(Or when skilled people can start supplying their skills without jumping through a thousand hoops (which restricts supply))

The more I live here the more I think that supply constraints - in many areas - are the biggest single issue affecting consumers.

Re: Does anyone understand the economic thinking here
 

Yes but food and petrol, fruit and electricity.......... are hardly luxury goods are they?

Re: Does anyone understand the economic thinking here
 

Agreed ... all of which seems to be done under the dubious name of "consumer protection" ...

Best regards.

Re: Does anyone understand the economic thinking here
 

Vash,

This thread was about the economic thinking in Australia, Not the UK , no-one wants to turn this into a "my country is better than your country" so i cannot see the relevance in all the stats about the UK :confused:

Re: Does anyone understand the economic thinking here
 

Very true, and with the attitude of many Aussies being "Oh well, what can you do? I'll just bend over and take it...", it's unlikely to generate any consumer resistance in the marketplace.

I make it my mission to pay as little as possible for things, open accounts with fee free banks, take out credit cards with no fees etc, but until more people actually sit up and take notice, I can't see that this virtual command economy is going to change...

S

Re: Does anyone understand the economic thinking here
 

True. The explanation I gave was just a general one as far as I understand it (I'm not an economist either - just a humble engineer. ;) ).

Petrol prices have come down considerably - down below $1 a litre in places and are governed by the world oil price (which in itself has come down from the high US$78 to below US$60 a barrel (though up today on
attacks on Nigerian Oil Facilities ). And is it REALLY necessary for all those V6's and V8's being driven?

Incidentally, it's possible to save over 15% / litre just by filling up on the 'cheap' days (ie yesterday fuel was $1.07 - today it's $1.25.

I can't say I've found food expensive in Australia so far (with the exception of certain items such as Bananas but that's due to external factors). Meat is incredibly cheap - one butcher I've driven past sells whole lambs for $4.99/kg!

Australia is currently experiencing a boom and has very low unemployment rates. Left unchecked, inflation could spiral making every $ in your pocket worth less (not to mention your pension fund), your wage demands will increase to compensate, employers will have to cut back on staff, unemployment increases etc etc and round it goes. It can be a vicious circle.

Re: Does anyone understand the economic thinking here
 

Why do consumers put up with prices being cheaper on some days of the week than others, for no other reason than it being a Wednesday rather than a Thursday? I don't pay more to use public transport on a Thursday...

$15.99 a kilo Coles was selling diced lamb for yesterday. Thankfully I was able to pick up some reduced due to being close to sell by date and get a few dollars knocked off. Haven't found a butchers yet that sells noticeably cheaper than that in inner city Sydney.

Re: Does anyone understand the economic thinking here
 

True, but inflation in everyday goods is just as bad as inflation in luxury ones - in some cases worse, because everybody needs to buy bread and vegetables.

The last thing was the Banana harvest - Bananas are one of Australia's key inflationary pointers, and when they rocketed in value, inflation moved to follow, prompting an interest rate hike.

The next problem looks like it could be the wheat harvest, which may well be pretty bad due to the drought. That would lead to a massive increase in the cost of bread. Necessities don't come much more basic than that. This could trigger upwards inflationary pressure yet again, stimulating more interest rate hikes.

It's all fun and games...

S

Re: Does anyone understand the economic thinking here
 

Just run this past me again - Are you saying that if I opened my own petrol station, I couldn't just set the prices according to my economics and then off I go? Would I have to report them to some kind of central comittee of petrol prices?

If I could buy petrol at, say, $0.70 wholesale, I couldn't just sell it at $0.90 and undercut the guy up the road by 35c?

Am I right?

S

Re: Does anyone understand the economic thinking here
 

All petrol stations have to submit their prices the day before they actually sell at that price.

There was a case earlier this year where an independent actually sold his petrol lower than what he said he was going to do.

If memory serves, he was given a hefty fine.

Re: Does anyone understand the economic thinking here
 

Thought of the wheat one as soon as the first wheat story emerged. Its getting very predicatable.

The good nutritional grainy stone ground type bread is rarely discounted to the extent of the white bread which has little nutritional value and now linked to several cancers. So with the good bread already just a tad under $4 a loaf I already guess it wont be long till we see $5 a loaf and beyond.

Somebody else mentioned why do consumers put up with it, I would like to know this too, take food up 9.9% this quarter, now when the supermarkets announced their billion dollar profits the justificaton for such ludicrous food prices was petrol costs, petrol costs have since fallen, yet not one food item was reduced.

Re: Does anyone understand the economic thinking here
 

On petrol stations Woolies and coles have bought up something like 60% of petrol stations in a year, the shopper docket discount is the tactic to push the small guy out of business. I imagine once they have an even bigger share, the discount vouchers will disappear, and the cheaper prices we are seeing at the moment will be gone again.

Nice to think that the 2 big companies own nearly all supermarkets (under several names) will soon control almost all of petrol sales too :scared:

Re: Does anyone understand the economic thinking here
 

oh dear!!! how does one survive all these price rises with no rise in income!!??
What on earth is going on...are they trying to put people off coming here?
Giving Tradies a hard time in getting licences etc..... :rolleyes: :mad:

Re: Does anyone understand the economic thinking here
 

Well my weekly food shop just reached $300! 2 years ago it was about $120. I now have to think twice before just putting stuff in the basket. What bugs me is the weekly pricing structure woolies seem to use. Take cordial for example today it's $4.07 a bottle and has been for 2 weeks, next week it will drop to $3 for a week. The following week it jumps to about $3.80 and then back to $4.07 before starting the cycle all over again. Hence I now stock up in the stuff on a cheap week to last a month. Same goes for the pasta meals, a 50% hike for 2 weeks then a drop back to $1 a bag so they can say it's on special. I understand they hike things up prior to going on sale but the hikes are so ridiculous I don't buy them at all now.

Take petrol, 4c off a litre if you spend more than $30 on food, great until you realise that even with the discount the fuel is still more than the garages that arn't affiliated with the store.

Since being here and as I do the weekly shop the prices have risen so fast you can see it happening week on week, It reminds me of a trip I had to comunist czech years ago where the bread was twice the price at the end of the holiday than it was when I arrived! It will only get worse as the drought tightens and Australia continue with thier anti competitive practices at quarentine and customs in the fake belief they are really protecting us all.

Re: Does anyone understand the economic thinking here
 

Had better point out,( I dont want vashes mum coming round :D ) that australias 1.2 million workers on the minimum wage have just got a $27.36 a week pay rise to $511 a week. Or about eight bananas :D if we are using the governments yardstick to how well off we are.

Re: Does anyone understand the economic thinking here
 

Thats why we have savings to dip into. When it's gone we can all go home.

Re: Does anyone understand the economic thinking here
 

Marco I think this is a good explanation if you dont want inflation to rise you have to raise interest rates. Id say it was more a see-saw then a circle!

Re: Does anyone understand the economic thinking here
 

Amongst a whole swag of stuff, I think interest rises (monetary policy) is supposed to stop spending which increases inflation and overheats the economy - consumer debt is massive. I might say (and I'm probably wrong) that this is more concern.

I would say this is more of a choice thing - costly essentials aren't going to kill me because I spend less on consumerables. Some things you will buy regardless of how expensive they are (up to a point). This is a measure of how 'inelastic' (or is 'elastic'? :confused: )something is. What sort of should be happening is that people spend less on crap and more on what they need - the expensive food. Never understood people who are in debt who get in to further debt just because they want a plasma(!) :D

Of course, you need spending to increase the economy so it's always been a vicious circle(!) of trying to catch the economy at the right time. You don't need a pass in Maths etc to understand it - just the issues and the advice you're given.

Re: Does anyone understand the economic thinking here
 

I would say this is the concern - remember we've experienced *umpteen* years of growth.

The government sound good remember when they mention 'oh dear' cost of food - nothing we can do because they know people will keep going. They don't like to point the finger at the man in the street and say "stop spending" because they might want him to go back on the plastic sometime in the next cycle. Near where we live, there are areas where peoples' whole lives are based on shopping and derived activities, and don't like being told. So they do it with interest rates.

Re: Does anyone understand the economic thinking here
 

These guys may well not be cheaper than Coles (although on some they are), but the quality more than makes up for them.
Highly recommended if you live in Sydney!

Steve

www.butcher2u.com.au

Re: Does anyone understand the economic thinking here
 

the local baker near to me said that he could see some of his better breads going to nearer $10 for a loaf! Some of them are already nearly $5!

I'm off to buy a breadmaker at the weekend I think. I can experiment with some flour and stuff and see how I get on. May save some pennies in the long run...

S

Re: Does anyone understand the economic thinking here
 

They're great - drawback is the time and care spent measuring the ingredients(!)

Re: Does anyone understand the economic thinking here
 

Well, that was what I thought, but my friend says that you can buy a ready mixed packet, with everything pre-measured and mixed. Just add water and Robert is your fathers brother...

Apparently you can get enough for 4 loaves for about $6. She sets her machine on a timer so that it comes on overnight, and is just finished when she gets up, to the lovely smell of freshly baked bread for breakfast...

Mmmmmm..... Bread.......

S

Re: Does anyone understand the economic thinking here
 

I have heard that it goes off in less than a day as there are no preservatives... so you will have to make a new one every morning, even if you just want one slice of toast!!

Re: Does anyone understand the economic thinking here
 

I Live in a high bread intake regime, so that shouldn't be a problem. Who needs preservatives anyway? I can just run it through the high intensity UV source at work...

S

Re: Does anyone understand the economic thinking here
 

I think at that stage I will emigrate :eek:


On the subject, just did a school run, kids needed replacement glue stick, popped into woolworth, woman in front of us had about 12 bananas $32.70 :scared:

Re: Does anyone understand the economic thinking here
 

IMO part of the problem is the willingness of banks to lend money and give people credit cards with high limits. We were recently told by a mortgage broker that there are some banks out there who would be willing to lend us over $1.2m. That's on a joint income of $160k per annum. Madness.

Re: Does anyone understand the economic thinking here
 

Obviously not a local then.... :D

Re: Does anyone understand the economic thinking here
 

Interest rates is the only lever than most western economies can use nowadays. If inflation goes up then the bank raises rates, if it goes down the rates go down. I suspect that most Australians are not on the breadline so they are not just spending on essentials.

:)