tag:theconversation.com,2011:/id/topics/inflation-645/articlesInflation – The Conversation2024-03-14T10:35:45Ztag:theconversation.com,2011:article/2222262024-03-14T10:35:45Z2024-03-14T10:35:45ZInflation in Nigeria is still climbing while it has slowed globally: here’s why<p>Just as Nigerians were gradually digging out from the devastating effects of the <a href="https://www.who.int/europe/emergencies/situations/covid-19">COVID-19 pandemic</a>, they were hit by high <a href="https://theconversation.com/nigerians-feel-the-pinch-as-food-prices-continue-to-spiral-there-arent-easy-solutions-188489">inflation</a>. </p>
<p>The Nigerian economy contracted by <a href="https://www.weforum.org/agenda/2020/08/africa-largest-economy-worst-contraction-in-a-decade/">6.1%</a> at the peak of COVID in the second quarter of 2020. Unemployment rate rose from 27% in the second quarter of 2020 to 33% in the fourth quarter of the same year. </p>
<p>The World Bank estimated that <a href="https://theconversation.com/nigerias-covid-19-economic-plan-has-delivered-disappointing-results-heres-why-169417">11 million Nigerians</a> were pushed into poverty during the pandemic, in addition to the 100 million (out of 200 million people in the country) who were already classified as poor. </p>
<p>Now, Nigerians have to grapple with unprecedented inflation too.</p>
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<a href="https://theconversation.com/nigerias-food-inflation-losers-winners-and-a-possible-solution-172313">Nigeria's food inflation: losers, winners and a possible solution</a>
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<p>Nigeria’s <a href="https://www.cbn.gov.ng/rates/inflrates.asp">inflation rate</a> rose to 29.90% in January 2024, from 28.92% in December 2023. This is the highest it has been in two decades. </p>
<p>Global inflation has reached historic levels during the past three years. The International Monetary Fund expects <a href="https://www.imf.org/en/Blogs/Articles/2024/01/12/charts-spotlight-inflation-economic-growth-globalization-and-climate-change">global inflation</a> to fall, however, from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. </p>
<p>The <a href="https://www.bbc.com/news/business-68277677">US</a> and the <a href="https://www.ft.com/content/0c1f51ff-e42c-4bbc-938a-2cc97c73894a">EU</a> have seen inflation decline during the past few months, prompting central banks to pause interest rate hikes. </p>
<p>In fact, central banks in developed countries are <a href="https://www.weforum.org/agenda/2023/11/interest-rate-hikes-pause-and-other-economy-stories-to-read-3-november-2023/">expected</a> to begin reducing interest rates this year.</p>
<p>So why is inflation rising in Nigeria while it has been declining in other parts of the world?</p>
<p>As a <a href="https://sites.allegheny.edu/econ/faculty-staff/stephen-onyeiwu/">development economist</a> who has been studying the Nigerian economy for over four decades, I argue in this article that the factors that are pushing inflation downward in other parts of the world are moving in the opposite direction in Nigeria. </p>
<p>I also suggest that no single factor can adequately explain rising inflation and escalating food costs in Nigeria. Nigeria’s unprecedented inflation is a case of multiple factors interacting to trigger <a href="https://www.investopedia.com/articles/05/012005.asp">cost-push inflation</a>. </p>
<p>If not addressed urgently, Nigeria’s rising inflation could result in “<a href="https://www.britannica.com/money/what-is-stagflation">stagflation</a>”. This is when the lack of robust economic growth is combined with hyperinflation. </p>
<p>With high numbers of <a href="https://www.statista.com/statistics/1288721/number-of-people-unemployed-in-nigeria/#:%7E:text=Total%20unemployed%20population%20in%20Nigeria%202010%2D2021&text=As%20of%202021%2C%20the%20total,in%20any%20form%20of%20employment.">unemployed people</a> who must purchase basic necessities at very high prices, Nigeria risks widespread protests, social tensions and political instability.</p>
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Read more:
<a href="https://theconversation.com/nigerias-food-insecurity-declaring-a-state-of-emergency-isnt-a-real-solution-heres-what-is-209907">Nigeria's food insecurity: declaring a state of emergency isn't a real solution - here's what is</a>
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<h2>Fuel prices</h2>
<p>Declining <a href="https://www.cnn.com/2023/11/22/energy/oil-prices-fall-opec-meeting-delayed/index.html">oil prices</a>, caused by a slow post-pandemic economic recovery, are causing freight prices to fall, which in turn has lowered production costs and consumer prices in many countries. </p>
<p>But Nigerians are not benefiting from the global decline in oil and natural gas prices. Rather, they are paying substantially more at the pump because of the <a href="https://www.economist.com/middle-east-and-africa/2023/06/08/nigerias-new-president-scraps-the-fuel-subsidy">removal</a> of fuel subsidies. </p>
<p>Fuel prices <a href="https://www.reuters.com/world/africa/nigeria-petrol-prices-soar-record-high-after-subsidy-removal-2023-07-18/">soared</a>, from N557 (US$0.35) to N617 (US$0.39) per litre, after the removal of the subsidy in May 2023. </p>
<p>In other words, while <a href="https://www.barrons.com/articles/natural-gas-prices-51674768324">falling</a> oil and natural gas prices are reducing production costs in other countries, costs are <a href="https://www.thecable.ng/domino-effect-of-petrol-subsidy-removal-on-food-income-insecurity">rising</a> in Nigeria.</p>
<p>A World Bank <a href="https://documents1.worldbank.org/curated/en/099061623093529051/pdf/P1779950377213012089e701681a43e5558.pdf">study</a> found that complete removal of fuel subsidies, except kerosene subsidies, increases economy-wide prices by 3.4%. </p>
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Read more:
<a href="https://theconversation.com/nigerias-fuel-subsidy-is-gone-its-time-to-spend-the-money-in-ways-that-benefit-the-poor-204701">Nigeria’s fuel subsidy is gone. It's time to spend the money in ways that benefit the poor</a>
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<h2>Supply constraints and inflation</h2>
<p>Another factor that is causing global inflation to decline is the <a href="https://www.reuters.com/markets/goodbye-maybe-great-inflation-scare-world-bank-blog-2023-12-18/">easing</a> of pandemic-era supply chain bottlenecks, which has occurred faster than expected. </p>
<p>Nigeria, however, continues to endure supply constraints because of the <a href="https://apnews.com/article/nigeria-foreign-exchange-rate-naira-2d0d62bc89358b957edd602f506b7650">floating</a> of the local currency, the naira. Floating the naira means its value will from now on be determined by market forces of demand and supply, or what the Central Bank of Nigeria refers to as “the willing seller, willing buyer” <a href="https://www.cbn.gov.ng/Out/2024/TED/Circular%20on%20allowable%20limit%20of%20exchange%20rate%20quoted%20by%20IMTOs.pdf">exchange rate</a>. </p>
<p>The central bank previously adopted a “<a href="https://byjus.com/commerce/managed-floating/">managed floating</a>” policy, whereby it periodically adjusted the official exchange rate. But the adjustment criteria were considered to be too opaque and un-reflective of market fundamentals. </p>
<p>The naira depreciated by <a href="https://businessday.ng/news/article/naira-loses-69-of-its-value-against-dollar-since-fx-reforms/">69%</a> between June 2023 when the foreign exchange market was <a href="https://www.centralbanking.com/central-banks/reserves/foreign-exchange/7959058/nigeria-liberalises-exchange-rate">liberalised</a> and the middle of February 2024.</p>
<p>Currency depreciation has increased import costs. Nigeria is an import-dependent economy, and Nigerian importers are purchasing goods at prices that are already very high abroad. The costs of these goods have also gone up because of higher tariffs caused by the <a href="https://punchng.com/industrialists-parents-lament-as-troubled-naira-ends-2023-at-907/">depreciation</a> of the naira. </p>
<p>For instance, only 1% of the roughly <a href="https://www.ifpri.org/blog/russia-ukraine-crisis-presents-threats-nigerias-food-security-potential-opportunities">six million metric tonnes</a> of wheat that Nigeria consumes annually is produced domestically. The <a href="https://www.cfr.org/global-conflict-tracker/conflict/conflict-ukraine">war in Ukraine</a> has raised food prices in Nigeria, as the country imports wheat from Russia and Ukraine, in addition to fertilizers from Russia.</p>
<p>Thus, much of Nigeria’s inflation is caused by a combination of oil subsidy removal and devaluation of the naira. Making it worse are longstanding supply constraints like instability in <a href="https://www.vanguardngr.com/2024/02/what-tinubu-must-do-to-avert-food-riots-in-nigeria/">food-producing areas</a> of the country, deteriorating rural infrastructure, climate change and the exodus of rural dwellers to urban centres in search of opportunities.</p>
<p>Food inflation in Nigeria also reflects low productivity in the agricultural sector. Output has failed to keep up with population growth. Nigeria’s population has been growing by about <a href="https://theconversation.com/nigerias-growing-population-can-be-an-advantage-with-better-data-and-a-policy-focus-on-young-people-209530">2.4%</a> a year, while the growth of agricultural value added is a paltry <a href="https://tradingeconomics.com/nigeria/agriculture-value-added-annual-percent-growth-wb-data.html">1.8%</a>. </p>
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Read more:
<a href="https://theconversation.com/nigerias-new-foreign-exchange-policy-is-good-news-but-it-cant-work-wonders-for-the-economy-on-its-own-207767">Nigeria's new foreign exchange policy is good news - but it can't work wonders for the economy on its own</a>
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<h2>Uncertain inflationary outlook</h2>
<p>Inflation is cooling globally partly because of the restrictive monetary and fiscal policies of many countries across the world. Central banks hiked interest rates aggressively and many governments cut spending. </p>
<p>Nigeria’s Central Bank governor <a href="https://www.cbn.gov.ng/AboutCBN/TheBoard.asp?Name=Mr%2E+Olayemi+Cardoso&Biodata=cardoso">Olayemi Cardoso</a> expects Nigeria’s inflation rate to decline to <a href="https://www.cbn.gov.ng/Out/2024/CCD/MPC%20Communique%20No%20150%20of%20the%20CBN%20Feb%202024.pdf">21.4%</a> in 2024, following interest rate increases and <a href="https://www.cbn.gov.ng/Out/2024/CCD/NESG%20CBN%20Governor's%20Keynote%20Speech.pdf">rising</a> agricultural productivity. </p>
<p>But I don’t expect a steep fall in Nigerian’s inflation this year. </p>
<p>First, inflation-targeting policies have lagged effects, and usually take time to make a difference to consumer prices. </p>
<p>Second, many prices are typically “sticky” downward. Once they go up they don’t come down – or only very gradually. </p>
<p>Lastly, Nigeria’s inflation targeting policy can only be effective if it is coupled with fiscal discipline by the executive and legislative branches of government. There is <a href="https://leadership.ng/tinubu-continues-with-borrowing-policy-of-previous-government/">no evidence</a> this has been the case so far under the Bola Tinubu administration.</p><img src="https://counter.theconversation.com/content/222226/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Onyeiwu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Factors pushing inflation rates downwards in other parts of the world are achieving the exact opposite result in Nigeria.Stephen Onyeiwu, Professor of Economics & Business, Allegheny CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2248802024-03-11T17:18:50Z2024-03-11T17:18:50ZVenezuelan migrants are boosting economic growth in South America, says research<p>Venezuela is engulfed in a political and economic crisis, which has forced over <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9870179/">6 million people</a> – some 20% of the population – to flee the country since 2015. The mass exodus began when Venezuela’s economy collapsed, giving rise to rampant inflation, political turmoil and pervasive violence. </p>
<p>Over 80% of those who have left Venezuela have set up a new life in <a href="https://www.iom.int/venezuelan-refugee-and-migrant-crisis">17 countries</a> across Latin America and the Caribbean. According to a <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">recent report</a>, these displaced migrants are having a positive effect on the economies of their host countries. </p>
<p>Between 2017 and 2030, migrant workers will boost the economies of their host countries by 0.10%–0.25% on average each year. The report, which was published by several leading international financial institutions and the UN Agency for Refugees, focuses on Venezuelan migrants but also covers Cubans and Salvadorans, among others.</p>
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Read more:
<a href="https://theconversation.com/venezuelas-soaring-murder-rate-has-plunged-the-nation-into-a-public-health-crisis-116771">Venezuela's soaring murder rate has plunged the nation into a public health crisis</a>
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<p>The economic impact of migrants in Latin America is significant. But their <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">integration</a> into local job markets and society is poor. The economic benefits derived from migrants across Latin America could be even greater if they are given better access to jobs.</p>
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<img alt="A crowd of Venezuelan protestors blocking a highway." src="https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Protesters closed a highway in Caracas, Venezuela, while demonstrating against the government of Nicolás Maduro in 2017.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/caracasvenezuela04262017-protesters-closed-highway-caracas-while-1093703018">Edgloris Marys/Shutterstock</a></span>
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<h2>Boosting economic growth</h2>
<p>Migration has clear <a href="https://www.imf.org/en/Blogs/Articles/2020/06/19/blog-weo-chapter4-migration-to-advanced-economies-can-raise-growth">economic benefits</a> for local economies. It leads to an <a href="https://www.frbsf.org/research-and-insights/publications/economic-letter/2023/02/role-of-immigration-in-us-labor-market-tightness/">expansion</a> of the workforce, thereby <a href="https://data.americanimmigrationcouncil.org/en/labor-market-forecast-2022/?_gl=1*1afuj9x*_ga*MTk0Nzk1NjQzNS4xNzA5NTUzNTg3*_ga_W0MSMD2GPV*MTcwOTU1MzU4Ni4xLjAuMTcwOTU1MzU4Ny4wLjAuMA.">alleviating labour shortages</a> and enhancing economic output.</p>
<p>Migrants bring a diverse range of skills and specialised knowledge to their host countries, which can improve the overall skill level of the local workforce. Their <a href="https://www.cato.org/cato-journal/fall-2021/effects-immigration-entrepreneurship-innovation">productive capabilities</a> bridge skill gaps in local labour markets and heighten overall productivity. </p>
<p>Most migrant workers will also pay <a href="https://www.jstor.org/stable/23056953">income tax</a>, which increases government revenues. In <a href="https://thedocs.worldbank.org/en/doc/7277e925bdaa64d6355c42c897721299-0050062023/original/WDR-Colombia-Case-Study-FORMATTED.pdf">Colombia</a>, for instance, the income tax contribution of Venezuelan migrants in 2019 was approximately US$38.7 million (£30.1 million), equivalent to 0.01% of Colombia’s GDP.</p>
<p>And when migrants gain employment, they will spend their wages in the host country and create new demand in various other sectors. Greater demand leads to <a href="https://www.mercatus.org/research/policy-briefs/benefits-immigration-addressing-key-myths">higher growth</a>, which in turn attracts more investment and increases employment opportunities both for local people and migrants.</p>
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Read more:
<a href="https://theconversation.com/colombia-gives-nearly-1-million-venezuelan-migrants-legal-status-and-right-to-work-155448">Colombia gives nearly 1 million Venezuelan migrants legal status and right to work</a>
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<h2>Underemployed</h2>
<p>However, xenophobia and discrimination prevent many migrants from finding jobs in Latin America and integrating into society. According to the report, roughly 30% of the migrants residing in Chile, Colombia and Peru experience discrimination because of their nationality. </p>
<p>Thus, many migrants are forced to take jobs within the <a href="https://www.imf.org/en/Publications/fandd/issues/2020/12/what-is-the-informal-economy-basics">informal sector</a>. Over <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">50% of migrants</a> in Latin America work informally compared to 44.5% of locals. </p>
<p>Migrant workers also often earn lower wages than their local counterparts. In <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">Colombia</a>, the average monthly salary of locals with post-secondary school education is US$1,140. Venezuelan migrants with the same level of education earn just US$644 per month. </p>
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<img alt="A man cleaning a car's windshield as it stops at a traffic light." src="https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A man cleaning a windshield at a traffic light in Lima, Peru.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/lima-peru-may-12-2020-poor-1729866145">Myriam B/Shutterstock</a></span>
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<p>Despite this, immigrants still <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">outperform</a> the native-born population in their labour force participation and employment rates. Yet many of the migrants who are in formal employment are overqualified for their roles. In <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">Chile</a>, for instance, 34% of highly educated locals are overqualified for their jobs, compared to over 60% of migrants. </p>
<p>Migrants are often <a href="https://www.sciencedirect.com/org/science/article/abs/pii/S2049879923000360">mistakenly assumed</a> to be exclusively low-skilled workers. But the Venezuelan migrant crisis has seen many highly skilled people flee the country too. For example, <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">65% of the Venezuelans</a> living in Chile and 48% residing in Ecuador have post-secondary school education.</p>
<p>However, most Venezuelans have not officially <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">validated</a> their academic credentials in their host countries. In fact, only 10% of those residing in Chile have completed the certification process.</p>
<p>Many migrants are <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">unaware</a> of the process so lack sufficient documentation about their qualifications. And the complexity of the process also demands investment that many migrants may not have the resources to cover.</p>
<p>To further enhance productivity in Latin America, it is essential to <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">integrate migrant workers</a> into professions that allow them to use their skills.</p>
<h2>Access to services</h2>
<p>Several other factors hinder the integration of migrants into society across Latin America. The report indicates that migrant workers have significantly lower access to health insurance relative to the native-born population. In Colombia, for example, 96% of local workers have access to health insurance, compared to just 40% of migrants.</p>
<p>Similarly, there are often <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">barriers</a> limiting access to education for migrants. Foreign-born residents and their family members have the right to access public primary and secondary education in the majority of South American countries. But school attendance rates are lower among displaced children than among native children, while the propensity for dropping out of school early appears to be significantly higher among migrant children.</p>
<p>Some people argue that immigration comes with costs, such as the perceived notion that migrants deprive locals of jobs. Nevertheless, the contribution of migrants to Latin American economies underscores the potential benefits. Improving their access to labour markets is thus a crucial tool for fostering long-term growth in Latin American economies.</p><img src="https://counter.theconversation.com/content/224880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jose Caballero does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More than 6 million people have fled Venezuela seeking better living conditions – now they are boosting economic growth in their host countries.Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2245452024-03-06T13:23:20Z2024-03-06T13:23:20ZNigeria: botched economic reforms plunge the country into crisis<p>Nigeria, Africa’s largest economy, is facing an economic crisis. From a botched currency redesign to the removal of fuel subsidies and a currency float, the nation has been plunged into spiralling inflation and a currency crisis with far-reaching consequences. The question now is: how long before the inferno consumes everything?</p>
<p>On October 26, 2022, the Central Bank of Nigeria announced a <a href="https://www.thecable.ng/breaking-buhari-unveils-redesigned-naira-notes">bold move</a> – that it had redesigned the country’s highest denomination notes (₦200, ₦500 and ₦1000) and would be removing all old notes from circulation. People were given a deadline of January 31, 2023 (a couple of weeks before a national election) to make this exchange, or all of the old notes would cease to be valid legal tender.</p>
<p>This initiative ostensibly aimed to curb counterfeiting, encourage cashless transactions, and limit the buying of votes during the elections. But, while the intention may have been sound, the execution proved disastrous. </p>
<p>Short deadlines, limited availability of new notes, and inadequate communication created widespread panic. It led to long queues at banks, frustration among citizens, and a <a href="https://carnegieendowment.org/2024/01/18/why-nigeria-s-controversial-naira-redesign-policy-hasn-t-met-its-objectives-pub-91405">thriving black market</a> for the new notes. </p>
<p>The confusion surrounding the currency redesign had an unintended consequence: the beginnings of a loss of confidence in the naira. People began to look to other mediums as a store of value and as a medium of exchange. The obvious choices were foreign currency like the US dollar and the British pound, as well as more stable cryptocurrencies like <a href="https://businessday.ng/business-economy/article/weak-naira-cross-border-payments-drive-nigerians-into-cryptos/">Tether’s USDT</a>.</p>
<p>The currency redesign was criticised at the time by the then-presidential candidate of the ruling party, Bola Ahmed Tinubu, who saw it as a move to <a href="https://www.vanguardngr.com/2023/01/2023-fuel-scarcity-naira-redesign-ploy-to-sabotage-my-chances-tinubu/">derail his presidential campaign</a>. However, Tinubu won the contested election and, once in power, set out to reshape the economy immediately. </p>
<p>In his inaugural address in May 2023, Tinubu <a href="https://www.premiumtimesng.com/news/top-news/601239-fuel-subsidy-is-gone-tinubu-declares.html">announced</a> that the “fuel subsidy is gone”, referring to the government’s longstanding subsidised petrol policy that ensured Nigerians enjoyed some of the lowest petrol prices in the world. Over the coming days, he would also announce the reversal of the currency redesign policy and the <a href="https://leadership.ng/tinubu-begins-monetary-policy-reforms-floats-naira/">floating of the Nigerian naira</a> on the foreign exchange market.</p>
<figure class="align-center ">
<img alt="A compilation of Nigerian naira bank notes." src="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When in office, Tinubu reversed the currency redesign policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/naira-currency-nigeria-200751113">Pavel Shlykov/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Fuelling the flames</h2>
<p>Other underlying economic conditions around the time of Tinubu’s inauguration included a large amount of foreign debt, dwindling foreign reserves and global economic headwinds. When the removal of the fuel subsidy was announced, it was met with a mix of surprise and elation by many Nigerians, and in particular by international donor agencies like the International Monetary Fund and the World Bank, who had long been <a href="https://www.reuters.com/markets/commodities/nigeria-should-end-fuel-subsidy-speed-reforms-boost-growth-world-bank-says-2021-11-23/">advocating</a> for the removal.</p>
<p>But this was all before the effects began to bite. And bite hard they did. The price of Premium Motor Spirit (also known as gasoline or petrol), which used to retail for ₦189 (US$0.12) per litre, increased by 196% practically overnight and began to retail for <a href="https://www.reuters.com/world/africa/nigeria-triple-petrol-prices-after-president-says-subsidy-end-2023-05-31/">₦557 per litre</a>. </p>
<p>One challenge with developing economies like Nigeria is that a rise in fuel price tends to cause the price of everything else to rise. Many industries, particularly those in manufacturing and agriculture, tend to rely heavily on fuel for powering machinery and equipment due to the poor supply of grid electricity nationwide.</p>
<p>Many Nigerian households were significantly affected by the increased prices. But they saw an opportunity in that the savings from the fuel subsidy regime would be redistributed to improve education, healthcare provision and the general welfare of the people, as was promised during the electioneering. The regime cost the country an estimated <a href="https://www.premiumtimesng.com/news/top-news/582724-fuel-subsidy-now-above-n400bn-monthly-nnpcl.html">₦400 billion</a> a month at its height, after all. </p>
<h2>Enter currency devaluation</h2>
<p>Then, on June 14, 2023, the Tinubu government ended the policy of pegging the naira to the US dollar, allowing it to float and find its true market value based on supply and demand. The idea was to stop corruption and reduce arbitrage opportunities due to the difference between official and black-market foreign exchange prices. </p>
<p>Currency arbitrage happens when people buy a currency at the lower official exchange rate and immediately sell it at the higher black market rate for a profit. This practice often occurs where there are strict currency controls and black markets offer a truer reflection of a currency’s value based on supply and demand.</p>
<p>However, this was one policy change too many. The naira lost a staggering <a href="https://www.focus-economics.com/countries/nigeria/news/exchange-rate/central-bank-sets-the-naira-free-to-fall/">25% of its value</a> in one day, and the cascading effects now push the country to the brink.</p>
<p>Nigeria depends heavily on imported commodities, including essential goods like food, fuel and medicine. So the policy escalated the inflationary crisis, pushing inflation to almost 30% (the major driver being food inflation, which <a href="https://leadership.ng/food-headline-inflation-spike-to-35-4-29-9/">reached 35.4%</a>). </p>
<p>Imports in general have become significantly more expensive, and Nigerians are finding their purchasing power being eroded. Wages in Nigeria are pretty fixed. The current minimum wage in the country is <a href="https://www.statista.com/statistics/1119133/monthly-minimum-wage-in-nigeria/">₦30,000</a> per month and the average monthly income is <a href="https://wagecentre.com/work/work-in-africa/salary-in-nigeria">₦71,185</a>. </p>
<p>Businesses are also feeling the pinch, facing difficulties accessing the <a href="https://www.trade.gov/country-commercial-guides/nigeria-market-challenges">foreign exchange</a> critical for importing raw materials and equipment. </p>
<h2>Pheonix or ash?</h2>
<p>The Central Bank of Nigeria has implemented measures to counter the crisis. It recently raised interest rates from <a href="https://punchng.com/just-in-cbn-raises-interest-rate-to-22-75/">18.75% to 22.75%</a> and is selling US dollars through auctions. </p>
<p>Recovery is a possibility and there are already signs of appreciation in the currency. The <a href="https://businessday.ng/news/article/naira-records-first-gain-at-official-market-after-rate-hike/">naira appreciated</a> by 6.89% a day after interest rates were raised. But it will be a long, hard road. </p>
<p>These strategies often come with trade-offs. Higher interest rates can stifle already struggling economic growth, while currency interventions might deplete already strained reserves of foreign currency. </p>
<p>The bottom line is that if the current cost of living crisis continues, civil unrest is likely. Should this happen, who knows what – if anything – will be left behind when the flames are done.</p><img src="https://counter.theconversation.com/content/224545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kunal Sen has received funding from ESRC and DFID. </span></em></p><p class="fine-print"><em><span>Chisom Ubabukoh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Africa’s largest economy is in crisis, and unrest is growing.Chisom Ubabukoh, Assistant Professor of Economics, O.P. Jindal Global UniversityKunal Sen, Professor and Director, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2243802024-03-04T13:28:02Z2024-03-04T13:28:02ZCost-of-living crisis: experts share 3 survival tips<p>The price increases for essential goods such as food, petrol and household utilities are a global concern, but the region most hurt by the <a href="https://www.imf.org/external/pubs/ft/ar/2023/in-focus/cost-of-living-crisis/#:%7E:text=The%20IMF%20heightened%20its%20efforts,the%202008%20global%20financial%20crisis.">surge in food prices</a> is sub-Saharan Africa. The knock-on effect from the supply chain disruption caused by the COVID-19 pandemic, climate disasters that resulted in food insecurity and energy shortages have driven prices through the roof.</p>
<p>A report by <a href="https://www.numbeo.com/cost-of-living/rankings_by_country.jsp?title=2024&region=002">Numbeo</a>, which contains the world’s largest database on costs of living, found that South Africa is the ninth most expensive African country to live in and the most expensive in cost of living (in terms of groceries, transport, utilities and restaurants) in southern Africa. The index shows Côte d'Ivoire is the African country with the highest cost of living, followed by Senegal, Ethiopia, Mozambique and Mauritius. </p>
<p>Consumers have had to cope with food prices by meal planning or buying in bulk to save money. Unilever’s food group <a href="https://www.news24.com/news24/bi-archive/south-african-consumer-go-on-tight-budgets-to-keep-meat-on-their-plate-2022-5">Knorr</a> found that the average South African was also skipping breakfast and eating two meals on weekdays, and only having breakfast during the weekend. </p>
<p>After years of researching <a href="https://researchprofiles.canberra.edu.au/en/persons/bomikazi-zeka/publications/">personal finance</a> and <a href="https://scholar.google.com.au/citations?user=f2301MMAAAAJ&hl=en&oi=ao">development finance</a>, we have taken a keen interest in understanding how consumers manage their resources to overcome economic challenges, such as the cost-of-living crisis. Now is a good time to be financially prudent and plan for how you can keep afloat during these tough times. </p>
<p>It’s important to know how to manage the cost-of-living crisis, whether it’s by getting out of debt, being strategic about how you save or tracking the expenses that consume a big chunk of your income. Keeping an eye out for where you can boost your savings or reduce expenses can make a significant difference to your financial wellbeing. </p>
<p>Since everyone’s financial situation is different, none of this should be taken as financial advice. It’s always best to speak to an authorised financial service provider. Some of these suggestions may only be helpful to individuals with access to banking services and those earning a regular income. With these provisos in mind, we unpack three areas to consider when managing the cost-of-living crisis.</p>
<h2>1. Consolidate your expenses</h2>
<p>Review where you’re paying for the same expense twice. A good example is bank fees. If you’re banking with more than one bank, then chances are you’re paying bank fees for similar transactions across different banks. By housing your finances with one bank, you can reduce bank fees. </p>
<p>Another example is subscriptions for streaming services. Consider how many accounts like Netflix, YouTube Premium, AppleTV and Showmax you have, and ask yourself: how many of them do you really spend time watching? All the fees add up. As Benjamin Franklin, the former US statesman, once put it: “Beware of little expenses. A small leak will sink a great ship.”</p>
<h2>2. Clear debt</h2>
<p>Since the cost-of-living crisis plunged more South African households into indebtedness, Nedbank’s Financial Health <a href="https://moneyedge.co.za/content/dam/moneyedge-2-0/money-conversations/NEDFIN-Health-Monitor-Report.pdf">Report</a> found that almost 50% of South Africans believe it is okay to take on debt to cover household expenses such as groceries, clothing, furniture, appliances, electricity and water. In <a href="https://www.ft.com/content/2dbc240e-328a-452b-9347-5091d74f4003">Nigeria</a>, too, consumers are turning to loans to cover daily expenses as inflation rates rise. </p>
<p>Taking on more debt when living expenses are on the rise can easily sink you deeper into the debt hole. Instead, coming up with a plan to pay off debts will eventually free up your cash flows. </p>
<p>There are two strategies to try: the debt snowball approach or the debt avalanche method. </p>
<p>The debt snowball approach prioritises paying off your smallest debts first, before moving on to larger loans. Seeing your debt clearing up motivates you.</p>
<p>The debt avalanche approach tackles the debts with the highest interest rate first and will thus save you the most money as your high interest repayments are eliminated. </p>
<p>Whichever approach you decide to use, seek the opinion of a professional financial advisor. </p>
<h2>3. Compartmentalise your savings</h2>
<p>Saving provides financial security and a buffer for unplanned financial expenses. And it helps you reach your financial goals. While households with intermittent income are more likely to struggle with building up savings, opportunities to save may come in the form of reducing shopping costs, like switching to supermarket brands (which tend to be cheaper) or buying refills for household cleaning products. </p>
<p>In general, most people who actively save keep their savings for holidays, emergency funds, future purchases and long-term goals all in the same account. The problem with this approach is that when you need to withdraw from the savings account, you don’t know which part of your savings you’re withdrawing from. </p>
<p>One way to organise your savings is by separating them into the categories you are saving for. This could be done in a spreadsheet that shows how much you have saved for each category. You can clearly see how your savings for each goal are growing, which encourages you to keep the savings momentum going. </p>
<p>If you’re interested in taking this a step further, budgeting apps such as <a href="https://www.22seven.com/">22seven</a> create personalised budgets based on your actual spending patterns. This free app allows you to set limits for what you want to spend and tracks how much you’ve already spent.</p>
<p>For example, you can decide what you plan to spend for lifestyle expenses (such as dining out or shopping) and receive a notification when you are close to reaching your spending limit. But it’s important to practise some self-discipline and not overspend once those funds are depleted. And while this may seem like yet another app that needs to be installed, think of how easy it is to tap your debit card when going about your day and spending more than you had planned. </p>
<p>Sometimes we need to put measures in place to save ourselves from ourselves, and this is one of them.</p><img src="https://counter.theconversation.com/content/224380/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Keeping an eye out for where you can boost your savings or reduce expenses when times are tough can improve your financial wellbeing.Bomikazi Zeka, Assistant Professor in Finance and Financial Planning, University of CanberraAbdul Latif Alhassan, Professor of Development Finance & Insurance, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2242202024-02-25T14:20:26Z2024-02-25T14:20:26ZHere’s what we can learn from Canada’s response to inflation in the 1980s and 1990s<p>For the last two years, inflation has been at top of mind for Canadians. It is a tax on households. When prices rise, <a href="https://www.bankofcanada.ca/2020/08/understanding-inflation">the purchasing power of each dollar earned falls</a>.</p>
<p>This generates huge losses for the economy, as well as households on fixed incomes, and increases uncertainty, making it more difficult to plan for the future.</p>
<p>The real question in the minds of many economists is what the trend in inflation will be going forward, and when interest rates will begin to fall and bring relief to Canadians.</p>
<p>While this episode of inflation has created challenges for many, this is not the first time Canada has gone through such an experience; we have been here before.</p>
<h2>Inflation in the 1980s and 1990s</h2>
<p>Canada faced a serious inflation problem in the 1980s and 1990s when the consumer price inflation (CPI) index hit <a href="https://economics.td.com/ca-inflation-new-vintage">13 per cent in 1980 and was still at seven per cent in 1991</a>. </p>
<p>To solve this issue, in 1991, the Bank of Canada and the Minister of Finance agreed on a plan <a href="https://www.bankofcanada.ca/core-functions/monetary-policy/agreement-inflation-control-target/">to bring inflation down to a target level</a>. Initially, this was six per cent, but this was lowered to two per cent (within a one to three per cent range).</p>
<p>The Bank of Canada <a href="https://www.bankofcanada.ca/2022/04/understanding-policy-interest-rate">uses the overnight rate to control inflation</a>. This rate determines the rates of government treasury bills, the bank rate and variable rate mortgages. </p>
<p>In August 1981, <a href="https://www.huffpost.com/archive/ca/entry/high-interest-rates-canada-economy_ca_5fe4d080c5b66809cb30a445">the Bank of Canada pushed this rate to well over 20 per cent</a> — equivalent to a variable rate mortgage cost today of almost 23 per cent. In May 1990, the central bank increased the rate to almost 14 per cent. In both cases, the central bank brought inflation down, <a href="https://www.thecanadianencyclopedia.ca/en/article/recession">but at the cost of a serious economic slowdown</a>. </p>
<h2>The pandemic fuelled inflation</h2>
<p>The <a href="https://www.reuters.com/markets/us/canada-expected-renew-policy-framework-amid-concerns-about-rising-inflation-2021-12-13">inflation target was most recently renewed in December 2021</a>. It was remarkably effective until summer 2021, when inflation exceeded the three per cent range and <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/220720/dq220720a-eng.htm">peaked at over eight per cent in June 2022</a>.</p>
<p>The root cause of this inflation was not domestic like it had been in the 1990s. Rather, it was in response to the COVID-19 pandemic, which affected <a href="https://www.weforum.org/agenda/2022/06/inflation-stats-usa-and-world">all major Western economies</a>. </p>
<p>Canada was not alone in increasing its debt so citizens could stay home and limit the spread of infection. The Bank of Canada <a href="https://www.bankofcanada.ca/2020/05/our-policy-actions-in-the-time-of-covid-19/">lowered the overnight rate to 0.25 per cent</a> and intervened massively to <a href="https://www.bankofcanada.ca/2020/08/our-covid-19-response-large-scale-asset-purchases/">buy the government’s debt</a>.</p>
<p>Initially, <a href="https://thoughtleadership.rbc.com/proof-point-fewer-supply-chain-snarls-wont-be-enough-to-lower-inflation-to-2/">it was believed these inflation increases would reverse as supply chain challenges resolved</a>, so <a href="https://amp.cbc.ca/embed/index.html?preview=0&embed_type=customhtml&content_id=1.6807771&position=0&api=prod">central banks were slow to react</a>.</p>
<p>But this assumption proved false. As the pandemic receded, Canadians began spending <a href="https://www.theglobeandmail.com/business/article-canadians-savings-stockpile-is-a-300-billion-quandary-for-the">the money they had stored away during lockdowns</a>. With low interest rates, the prices of assets like houses and shares dramatically increased. The Russian invasion of Ukraine <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-effect-of-the-war-in-ukraine-on-global-activity-and-inflation-20220527.html">added another economic shock</a>. </p>
<p>By this point, high inflation had started to become entrenched in the expectations of businesses, unions and individuals. As history shows, once inflation becomes entrenched in the economy, <a href="https://www.imf.org/en/Blogs/Articles/2023/10/04/how-managing-inflation-expectations-can-help-economies-achieve-a-softer-landing">it is very difficult to reverse</a>.</p>
<h2>Taming inflation</h2>
<p>The Bank of Canada, although slow to react, successfully reversed the increasing inflation trend with <a href="https://www.theglobeandmail.com/topics/bank-of-canada">10 interest rate increases between March 2022 and July 2023</a> and by increasing the overnight rate to five per cent.</p>
<p>Inflation fell to 3.1 per cent in <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/231121/dq231121a-eng.htm">October</a> and <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/231219/dq231219a-eng.htm">November 2023</a>, creating optimism about returning to levels that would assure the Bank of Canada that inflation had been tamed.</p>
<p>Despite core inflation remaining stubbornly above three per cent, this relative success allowed the central bank to hold the overnight rate at five per cent, increasing the possibility of lower interest rates. </p>
<p>This confidence was confirmed with the <a href="https://www.cbc.ca/news/business/inflation-january-2024-1.7119796">January CPI coming in at 2.9 per cent</a>, just inside the Bank of Canada’s operating band.</p>
<p>It’s clear that central banks must act as soon as they can to prevent inflationary expectations from becoming entrenched in the economy. Once entrenched, the economy ends up bearing significant pain to reverse it — pain that is not spread evenly across the population.</p>
<h2>Food and shelter costs</h2>
<p>Interest rates and inflation are inextricably linked and they affect households in different ways. The CPI measures the rate of inflation on a basket of goods, but not all households consume every good in the basket, and not all prices increase at the same rate. Therefore, the impact of inflation varies across groups.</p>
<p>Younger, <a href="https://www150.statcan.gc.ca/n1/pub/75-006-x/2023001/article/00002-eng.htm">poorer households spend a disproportionately large portion of their income on food</a>, which has seen major price increases over the last two years. Similarly, those commuting from the outskirts of metropolitan areas faced higher commuting costs when gasoline prices spiked. </p>
<p>However, the biggest anomaly is in housing costs, where increasing interest rates designed to lower inflation automatically <a href="https://www.cpacanada.ca/news/pivot-magazine/2022-02-16-housing-market">translate into higher rental costs and imputed housing costs</a>.</p>
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Read more:
<a href="https://theconversation.com/two-thirds-of-canadian-and-american-renters-are-in-unaffordable-housing-situations-221954">Two-thirds of Canadian and American renters are in unaffordable housing situations</a>
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<p>In its January 2024 CPI report, Statistics Canada reported that rental costs increased by 6.2 per cent year over year, while food price inflation was still up 3.9 per cent. </p>
<p>Together food and shelter costs amount to 45 per cent of the CPI, but younger, poorer households have disproportionately suffered because their price index is skewed more toward food and shelter. </p>
<h2>A waiting game</h2>
<p>The impact of higher interest rates in Canada’s mortgage market depends critically on the maturity of someone’s mortgage and rent controls.</p>
<p>Many households with variable rate mortgages, or those renewing mortgages during this period of high interest rates, <a href="https://theconversation.com/heres-how-the-bank-of-canadas-interest-rate-hike-to-5-will-impact-canadian-households-209369">are struggling with significantly higher mortgage payments</a>.</p>
<p>Additionally, those who know they will have to renew their mortgage in the coming year are taking steps to adjust to those increases. </p>
<p>In fact, approximately 20 per cent of mortgages held by some of Canada’s biggest banks are negatively amortized, meaning homeowner payments do not cover the monthly interest charges. So, each month, <a href="https://www.theglobeandmail.com/business/article-mortgage-borrowers-td-bmo-cibc-homeowners">the amount owed on the mortgage increases</a>. Needless to say, many are urgently hoping for interest rate reductions in 2024.</p>
<p>Right now, the Bank of Canada is waiting to see what happens to inflation in the coming months before deciding whether to hold the overnight rate where it is, decrease it or increase it. This decision hinges on whether it feels the underlying or core rate of inflation aligns with its target zone. </p>
<p>The central bank is well aware that signalling a reduction too early could feed into greater consumer spending and higher inflation. So interest rates could stay where they are for several more months. While shelter and food price inflation will moderate, don’t expect actual prices to revert back to pre-pandemic levels.</p><img src="https://counter.theconversation.com/content/224220/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The real question in the minds of many economists is what the trend in inflation will be going forward, and when interest rates will begin to fall and bring relief to Canadians.Walid Hejazi, Professor of International Business, Rotman School of Management, University of TorontoLaurence Booth, Professor, Rotman School of Management, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2222332024-02-21T13:24:18Z2024-02-21T13:24:18ZYoung people are lukewarm about Biden – and giving them more information doesn’t move the needle much<figure><img src="https://images.theconversation.com/files/576872/original/file-20240220-16-qvln0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Young voters in Ann Arbor, Mich., fill out applications to cast their ballot in the midterm elections in November 2022. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/zachary-rose-fills-out-an-application-to-cast-his-ballot-news-photo/1244584443?adppopup=true">Jeff Kowalsky/AFP via Getty Images</a></span></figcaption></figure><p>Recent polling for the November 2024 election shows that President Joe Biden is struggling with young voters, who have traditionally supported Democrats. </p>
<p>A <a href="https://www.nytimes.com/interactive/2023/12/19/us/elections/times-siena-poll-registered-voter-crosstabs.html">December 2023 poll</a> showed that 49% of young people supported former President Donald Trump, while just 43% of 18- to 29-year-olds said they preferred Biden. </p>
<p>Biden is even struggling with young people who identify as Democrats. A <a href="https://iop.harvard.edu/youth-poll/46th-edition-fall-2023">Fall 2023 Harvard Kennedy School</a> poll shows that just 62% of Democrats aged 18 to 29 years old said they would vote for Biden in 2024. </p>
<p>Many Democrats are <a href="https://thehill.com/homenews/campaign/4138154-democrats-worry-young-people-souring-on-party/">increasingly anxious</a> that young voters who <a href="https://www.cnn.com/election/2020/exit-polls/president/national-results">supported Biden in 2020</a> will boycott the general election in 2024, support a third-party candidate or <a href="https://www.vox.com/politics/24034416/young-voters-biden-trump-gen-z-polling-israel-gaza-economy-2024-election">vote for Trump</a>. </p>
<p>Polls this far from Election Day are <a href="https://gking.harvard.edu/files/abs/variable-abs.shtml">notoriously variable</a> and not reliable for predicting election results. Furthermore, some political pundits are asking whether young voters <a href="https://www.nytimes.com/2023/11/27/upshot/poll-biden-young-voters.html">will return to the Biden coalition</a> once the campaign season heats up and they learn more about the two candidates. </p>
<p>As scholars of <a href="https://neilobrian.com">public opinion</a> and the <a href="https://scholar.google.com/citations?user=J4Vp11wAAAAJ&hl=en&oi=sra">U.S. presidency</a>, we are deeply interested in the prospect of young voters, particularly Democrats, defecting from the Biden coalition. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A young, white woman with brown hair wearing shorts and a beige cardigan walks past a bulletin board with flyers on it for vioting." src="https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/576870/original/file-20240220-28-6gi2uw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">An Emory University student in Atlanta walks past voting information in October 2022.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/young-woman-walks-past-voting-information-flyers-on-the-news-photo/1244204334?adppopup=true">Elijah Nouvelage/AFP via Getty Images</a></span>
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<h2>Mixed evidence on young voters’ support for Biden</h2>
<p>About <a href="https://www.pewresearch.org/politics/2015/04/07/a-deep-dive-into-party-affiliation/">51% of young voters</a>, aged 18 to 29 years old, identify as Democrats. This compares with 35% of these voters who identify as Republicans. In 2020, young voters in this age group made up an <a href="https://circle.tufts.edu/latest-research/election-week-2020#when-and-how-young-people-voted">estimated 17%</a> of the electorate. </p>
<p>In a close election, securing the youth vote will be paramount in order for Biden to win reelection.</p>
<p>We wanted to understand how young voters might change their election pick preferences if they learn more about different topics, such as the economy, likely to feature in this election season. </p>
<p>We recruited 1,418 respondents from across the country to participate in an online survey experiment in December 2023, including 860 people who identify as Democrats.</p>
<p>In this experiment, we exposed respondents to different messages that the Biden campaign might employ, to see if young Democrats could be persuaded back to Biden.</p>
<p>A quarter of the respondents saw information about how <a href="https://apnews.com/article/biden-inflation-reduction-climate-anniversary-9950f7e814ac71e89eee3f452ab17f71">inflation and</a> <a href="https://apnews.com/article/biden-unemployment-jobs-inflation-interest-rates-b1c21252024d697765d047a60f41e900">unemployment decreased</a> during the Biden administration. </p>
<p>Another quarter of respondents were given information about Trump’s norm-violating behavior, such as <a href="https://www.reuters.com/legal/government/us-capitol-riot-probe-turns-focus-trump-allies-extremist-groups-2022-07-12/">encouraging an insurrection</a> at the U.S. Capitol building on Jan. 6, 2021.</p>
<p>The next quarter of respondents were given information about Biden’s and Trump’s positions on abortion, and whether the U.S. should accept immigrants from the Gaza Strip. </p>
<p>The final group of respondents received no information about a particular topic.</p>
<p>In our research, which has yet to be published, we found mixed evidence that undecided young Democrats would be persuaded to vote for Biden based on any new information we shared with them. </p>
<p>Among the people we polled who were given no information, 66% of 18-year-old to 34-year-old Democrats said they would vote for Biden. This roughly tracks with national polling. </p>
<p>Would learning about the strength of the economy boost Biden’s support? </p>
<p>About 69% of young Democrats who read about dropping inflation and unemployment rates said they would vote for Biden, compared with 31% who said they would vote for Trump or another candidate. This reflects a modest increase in support for Biden, compared to people who had no information on this topic. </p>
<p>We then tested whether providing information to voters about the candidates’ policy positions would change support for Biden. </p>
<p>It is possible that voters are just unaware of the candidates’ positions on issues <a href="https://www.nytimes.com/2023/11/16/upshot/kamala-harris-biden-voters-polls.html?action=click&module=RelatedLinks&pgtype=Article">and, after getting more information</a>, will change their views. </p>
<p>We found that 71% of respondents who learned about Biden’s and Trump’s policy positions on abortion and Palestinian refugees from Gaza said they would vote for Biden, compared with the 66% who did not read any new information on these topics before deciding their pick. </p>
<p>Finally, we gave people information about Trump’s norm-violating behavior. This actually marginally decreased support for Biden, dropping from the 66% among people who did not have any of this information given to them in the survey to 63% among people who did. This change, though, lacked what social scientists call statistical significance – meaning that we cannot say this difference is not just attributable to chance alone. </p>
<p>Overall, we found that giving young Democrats access to three different pieces of information generally led to small increases in whether they said they would vote for Biden or not. </p>
<p>Next, we asked respondents “How enthusiastic would you say you are about voting for president in next year’s election?” and how likely they are to vote in the upcoming presidential election. We found that the three different pieces of information each led to a small increase in reported vote intention among young Democrats, but didn’t, on average, increase their enthusiasm about voting. In other words, if young voters feel compelled to vote, they may do so, but without enthusiasm.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Young people sit around a table, and two young people, both wearing white T-shirts, stand near a screen that says 'Canvass training'" src="https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/576873/original/file-20240220-20-e11nih.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Abortion rights canvassers gather for a canvass training in Columbus, Ohio, in November 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/pro-choice-canvassers-gather-for-a-canvass-training-meeting-news-photo/1766360809?adppopup=true">Megan Jelinger/AFP via Getty Images</a></span>
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<h2>The power of persuasion</h2>
<p>Taken together, these results show little movement among young Democrats. This is particularly striking when compared to older Democrats in our sample. </p>
<p>When presented with information about the strength of the economy, the candidates’ divergent policy positions or Trump’s norm-violating behavior, support for Biden among likely voters who were 55 years old or older and identified as Democrats increased from 73% to around 90%.</p>
<p>These results suggest an uphill battle for the Biden campaign to bring back young voters. Young voters, even if they identify as Democrats, are perhaps less attached to a party, or democratic institutions more generally, <a href="https://www.washingtonpost.com/opinions/2023/12/18/democracy-young-people-voters-trump/">than older voters</a>. This means campaign messages about democratic norms might be less persuasive among younger voters. </p>
<p>On the other hand, there are reasons to expect young voters might return to Biden: The economy is doing well, which <a href="https://news.northeastern.edu/2023/11/06/presidential-election-predictions-polls/">tends to help incumbents</a>. </p>
<p>Furthermore, partisanship, particularly in this polarizing environment, remains a powerful influence, and may still exert a pull on young Democrats over the campaign.</p>
<p>Democrats, after all, successfully ran on an anti-Trump campaign in the <a href="https://www.pewresearch.org/politics/2023/07/12/voter-turnout-2018-2022/">2022 midterm elections</a>, <a href="https://morningconsult.com/exit-polling-live-updates/?mkt_tok=eyJpIjoiTTJGbU9EZ3dNalZtTURZMiIsInQiOiJTOTZTRHBrN0lNWG9IVisxUXhEdUdtcUxYaENlS2tIYlJ1YTZyTzhkNjBQM2o0dWVwZlVad3lxaTk1N0FtelwvMkJDOTdsYWtmVDU5eVVDQjhjcjJLUDBocGFaWjRRalVaXC9paTE1dGhzSmxrYWtjUnlXWEk2cVlDc0xPS1FQZ0RPIn0%3D#section-100">2020 general election</a> and the <a href="https://www.nytimes.com/2018/11/06/us/politics/midterm-elections-results.html">2018 midterm elections</a>.</p><img src="https://counter.theconversation.com/content/222233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While young voters say they would be more likely to vote for Biden after they learn more about the economy and other topics, they did not appear affected by Donald Trump’s norm-defying behavior.Neil O'Brian, Assistant Professor of Political Science, University of OregonChandler James, Assistant Professor of Political Science, University of OregonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2189272024-02-04T01:02:06Z2024-02-04T01:02:06ZMortgage and inflation pain to ease, but only slowly: how 31 top economists see 2024<figure><img src="https://images.theconversation.com/files/572630/original/file-20240201-21-xh5xpo.png?ixlib=rb-1.1.0&rect=45%2C86%2C1871%2C870&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>A panel of 31 leading economists assembled by The Conversation sees no cut in interest rates before the middle of this year, and only a slight cut by December, enough to trim just $55 per month off the cost of servicing a $600,000 variable-rate mortgage.</p>
<p>The <a href="https://theconversation.com/au/topics/conversation-economic-survey-81354">panel</a> draws on the expertise of leading forecasters at 28 Australian universities, think tanks and financial institutions – among them economic modellers, former Treasury, International Monetary Fund and Reserve Bank officials, and a former member of the Reserve Bank board.</p>
<p>Its forecasts paint a picture of weak economic growth, stagnant consumer spending, and a continuing per-capita recession.</p>
<p>The average forecast is for the Reserve Bank to delay cutting its cash rate, keeping it near its present 4.35% until at least the middle of the year, and then cutting it to <a href="https://cdn.theconversation.com/static_files/files/3028/The_Conversation_AU_February_2024_Economic_Survey.pdf">4.2%</a> by December 2024, 3.6% by December 2025 and 3.4% by December 2026.</p>
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<p>The gentle descent would deliver only three interest rate cuts by the end of next year, cutting $274 from the monthly cost of servicing a $600,000 mortgage and leaving the cost around $1,100 higher than it was before rates began climbing.</p>
<p>Six of the experts surveyed expect the Reserve Bank to increase rates further in the first half of the year, while 20 expect no change and three expect a cut.</p>
<p>Former head of the NSW treasury Percy Allan said while the Reserve Bank would push up rates in the first half of the year to make sure inflation comes down, it would be forced to relent in the second half of the year as unemployment grows and the economy heads towards recession.</p>
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Read more:
<a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">The 7 new graphs that show inflation falling back to earth</a>
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<p>Warwick McKibbin, a former member of the Reserve Bank board, said the board would push up rates twice more in the first half of the year as insurance against inflation before leaving them on hold.</p>
<p>Former Reserve Bank of Australia chief economist Luci Ellis, who is now chief economist at Westpac, expects the first cut no sooner than September, believing the board will wait to see clear evidence of further falls in inflation and economic weakening before it moves.</p>
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<h2>Inflation to keep falling, but more gradually</h2>
<p>Today’s <a href="https://www.rba.gov.au/">Reserve Bank board meeting</a> will consider an inflation rate that has come down <a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">faster than it expected</a>, diving from 7.8% to 4.1% in the space of a year.</p>
<p>The newer more experimental monthly measure of inflation was just <a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">3.4%</a> in the year to December, only points away from the Reserve Bank’s target of 2–3%.</p>
<p>But the panel expects the descent to slow from here on, with the standard measure taking the rest of the year to fall from 4.1% to 3.5% and not getting below 3% until <a href="https://cdn.theconversation.com/static_files/files/3027/The_Conversation_AU_2024_economic_survey.pdf">late 2025</a>.</p>
<p>Economists Chris Richardson and Saul Eslake say while inflation will keep heading down, the decline might be slowed by supply chain pressures from the conflict in the Middle East and the boost to incomes from the <a href="https://theconversation.com/albanese-tax-plan-will-give-average-earner-1500-tax-cut-more-than-double-morrisons-stage-3-221875">tax cuts</a> due in July.</p>
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<h2>Slower wage growth, higher unemployment</h2>
<p>While the panel expects wages to grow faster than the consumer price index, it expects wages growth to slip from around <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">4%</a> in 2023 to 3.8% in 2024 and 3.4% in 2025 as higher unemployment blunts workers’ bargaining power.</p>
<p>But the panel doesn’t expect much of an increase in unemployment. It expects the unemployment rate to climb from its present <a href="https://www.datawrapper.de/_/w9h9f/">3.9%</a> (which is almost a long-term low) to 4.3% throughout 2024, and then to stay at about that level through 2025.</p>
<p>All but two of the panel expect the unemployment rate to remain below the range of 5–6% that was typical in the decade before COVID.</p>
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Read more:
<a href="https://theconversation.com/we-can-and-should-keep-unemployment-below-4-say-top-economists-211277">We can and should keep unemployment below 4%, say top economists</a>
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<p>Economic modeller Janine Dixon said the “new normal” between 4% and 5% was likely to become permanent as workers embraced flexible arrangements that allow them to stay in jobs in a way they couldn’t before.</p>
<p>Cassandra Winzar, chief economist at the Committee for the Economic Development of Australia, said the government’s commitment to full employment was one of the things likely to keep unemployment low, along with Australia’s demographic transition as older workers leave the workforce.</p>
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<h2>Slower economic growth, per-capita recession</h2>
<p>The panel expects very low economic growth of just 1.7% in 2024, climbing to 2.3% in 2025. Both are well below the 2.75% the treasury believes the economy is <a href="https://treasury.gov.au/speech/the-economic-and-fiscal-context-and-the-role-of-longitudinal-data-in-policy-advice">capable of</a>.</p>
<p>All but one of the forecasts are for economic growth below the present population growth rate of 2.4%, suggesting that the panel expects population growth to exceed economic growth for the second year running, extending Australia’s so-called <a href="https://theconversation.com/were-in-a-per-capita-recession-as-chalmers-says-gdp-steady-in-the-face-of-pressure-212642">per capita recession</a>.</p>
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<p>The lacklustre forecasts raise the possibility of what is commonly defined as a “technical recession”, which is two consecutive quarters of negative economic somewhere within a year of mediocre growth.</p>
<p>Taken together, the forecasters assign a 20% probability to such a recession in the next two years, which is lower than in <a href="https://theconversation.com/two-more-rba-rate-hikes-tumbling-inflation-and-a-high-chance-of-recession-how-our-forecasting-panel-sees-2023-24-208477">previous surveys</a>.</p>
<p>But some of the individual estimates are high. Percy Allen and Stephen Anthony assign a 75% and 70% chance to such a recession, and Warren Hogan a 50% chance.</p>
<p>Hogan said when the economic growth figures for the present quarter get released, they are likely to show Australia is in such a recession at the moment. </p>
<p>The economy barely grew at all in the September quarter, expanding just <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">0.2%</a> and was likely to have shrunk in the December quarter and to shrink further in this quarter.</p>
<p>The panel expects the US economy to grow by 2.1% in the year ahead in line with the <a href="https://www.imf.org/en/Publications/WEO/Issues/2024/01/30/world-economic-outlook-update-january-2024">International Monetary Fund</a> forecast, and China’s economy to grow 5.4%, which is lower than the International Monetary Fund’s forecast.</p>
<h2>Weaker spending, weak investment</h2>
<p>The panel expects weak real household spending growth of just 1.2% in 2014, supported by an ultra-low household saving ratio of close to zero, down from a recent peak of 19% in September 2021.</p>
<p>Mala Raghavan of The University of Tasmania said previous gains in income, rising asset prices and accumulated savings were being overwhelmed by high inflation and rising interest rates. </p>
<p>Luci Ellis expected the squeeze to continue until tax and interest rate cuts in the second half of the year, accompanied by declining inflation.</p>
<p>The panel expects non-mining investment to grow by only 5.1% in the year ahead, down from 15%, and mining investment to grow by 10.2%, down from 22%.</p>
<p>Johnathan McMenamin from Barrenjoey said private and public investment had been responsible for the lion’s share of economic growth over the past year and was set to plateau and fade as a driver of growth.</p>
<h2>Home prices to climb, but more slowly</h2>
<p>The panel expects home price growth of 4.6% in Sydney during 2024 (down from 11.4% in 2024) and 3.1% in Melbourne, down from 3.9% in 2024.</p>
<p>ANZ economist Adam Boyton said decade-low building approvals and very strong population growth should keep demand for housing high, outweighing a drag on prices from high interest rates. While high interest rates have been restraining demand, they are likely to ease later in the year.</p>
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<p>In other forecasts, the panel expects the Australian dollar to stay below US$0.70, closing the year at US$0.69, it expects the ASX 200 share market index to climb just 3% in 2024 after climbing 7.8% in 2023, and it expects a small budget surplus of A$3.8 billion in 2023-24, followed by a deficit of A$13 billion in 2024-25.</p>
<p>The budget surplus should be supported by a forecast iron ore price of US$114 per tonne in December 2024, down from the present US$130, but well up on the <a href="https://budget.gov.au/content/myefo/index.htm">US$105</a> assumed in the government’s December budget update.</p>
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<h2>The Conversation’s Economic Panel</h2>
<p><em>Click on economist to see full profile.</em></p>
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<p class="fine-print"><em><span>Peter Martin is economics editor of The Conversation AU.</span></em></p>The Conversation’s expert 00panel expects inflation to continue to fall, but more gradually, and it expects the RBA to be slow in responding. Unemployment should climb and economic growth weaken.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2225062024-02-01T06:15:55Z2024-02-01T06:15:55ZPolitics with Michelle Grattan: Angus Taylor on tax and the economy<p>With the government’s changes to the stage 3 tax cuts to favour lower and middle income earners, and a looming by-election in the Victorian seat of Dunkley, eyes are now on the opposition for its response to Labor’s new package. </p>
<p>In our first podcast of 2024, Shadow Treasurer Angus Taylor discusses the tax broken promise, where the economy is heading, falling inflation, and more. </p>
<p>On the government’s tax backflip he says: </p>
<blockquote>
<p>I think Labor has shifted to a robbing-Peter-to-pay-Paul mindset now. They clearly believe in zero-sum economics, a zero-sum politics, where you take something from some and give it to another, and that is not acceptable.</p>
</blockquote>
<p>On stage 3 itself, Taylor is quick to defend the Coalition version: </p>
<blockquote>
<p>Stage 3 tax cuts were tax reform. They are about incentivising people to change their behaviours in positive ways for the economy and for all of us.</p>
</blockquote>
<p>On whether the government should be giving further cost-of-living assistance now: </p>
<blockquote>
<p>[It] tells us something about how the political culture has changed – which is the idea that if someone gets behind, the only answer is to give them money. Actually, the number one objective here has to be to enable people to get ahead.</p>
</blockquote>
<hr>
<p>TRANSCRIPT, POLITICS WITH MICHELLE GRATTAN </p>
<p>MICHELLE GRATTAN:</p>
<p>Today in our first podcast for 2024, we talk with Shadow Treasurer Angus Taylor, about tax and the economic outlook. Angus Taylor, the opposition has yet to declare its attitude on the government’s tax package. But what are the factors that you’re taking into account in making your decision?</p>
<p>ANGUS TAYLOR:</p>
<p>Yeah, good to be with you, Michelle. And good question and the right question of course. We aren’t at a position yet, where I’m going to tell you on this podcast, what our detailed response will be. And we haven’t seen legislation yet either, of course. We fully expect that the Greens will be looking for their 10 cents worth or far more than 10 cents, when they get a chance to negotiate with Labor on it. But that being said, we are the party for lower, fairer, simpler taxes. We also feel very strongly, as you said in your introduction, that Anthony Albanese and Jim Chalmers, having committed to sticking with the stage three tax cuts over 100 times have committed an egregious betrayal to the Australian people. And that it’s completely unacceptable for them to do that. So we remain strongly committed to the stage three tax cuts. To simplification of our tax system so that bracket creep doesn’t eat away at people’s incomes like a thief in the night. We also recognise that because of Labor’s complete failure to manage the economy, Australians’ standard of living has collapsed in the last 18 months to the tune of about $8,000 for every Australian which is completely unprecedented, in my lifetime, at least, that the result is that Labor is left with nowhere to go, but to look at ways of giving people money. But at the end of the day, what they’re proposing here is around $15 a week, and it doesn’t come close to the loss of real disposable income that Australians have faced in the last 18 months. So we’ll work our way through the proposal. We’ve obviously got our internal processes to work through. But the principles are clear, we are for lower, simpler, fairer taxes. We strongly believe that this is an egregious betrayal to the Australian people. And we do recognise that Labor’s failure to strengthen Australians’ standard of living - in fact the collapsing standard of living - is something that now has to be dealt with a second best solution.</p>
<p>MICHELLE GRATTAN:</p>
<p>In an article that you wrote for The Australian this week, you said that Labor’s changes to stage three were, and I quote, declaring war on aspiration. But isn’t this a narrow view of aspiration. For less well off people, aspiration might well be keeping up with the bills.</p>
<p>ANGUS TAYLOR:</p>
<p>Well aspiration is keeping up with the bills. You’re absolutely right, I’m, furious agreement with you. But it is more than that as well. It’s the ability to get ahead if you work hard. And this has been a centerpiece of our economy, for my lifetime and for substantially longer. And I think it’s central to what it is that’s made our country successful and prosperous. And one of the greatest, I would argue the greatest country in the world to live, that you can get ahead if you work hard. Now we realised back in the 70s and 80s, you couldn’t afford to have a taxation system that penalised people working hard to get ahead, making investments, taking risks, building businesses, building your career. They are the things that don’t only help you to become prosperous, they help others because that’s where job creation comes from. That’s where productivity and real wage increases come from. And in the absence of those sorts of incentives, then we have an economy that goes backwards, not forwards. And that is exactly what we’ve been seeing - an economy going backwards. So aspiration is central. And it’s central, not just for those who are aspirational, it’s central for all of us. It’s also the basis upon which tax revenue comes and we’re able to pay for hospitals and schools and roads and all of those things we want. It’s not possible to do that in a less prosperous country in the way that we’ve been doing it. So it is absolutely central to Australia. I think Labor has shifted to a robbing-Peter-to-pay-Paul mindset now. They clearly believe in a zero sum economics, a zero sum politics, where you take from some and give to another, and that it’s not acceptable, or it’s not possible, to raise the water level for all people, to raise prosperity levels for all people. And I think that’s a very significant shift in our political culture. I mean, you’ve really got to go back to the early 70s to go back to a time when this focus on prosperity and aspiration didn’t have a strong bipartisan, didn’t have strong bipartisan support. But that clearly is where Labor is going.</p>
<p>MICHELLE GRATTAN:</p>
<p>You said before that these tax cuts don’t amount to much real help for people, that the amount is fairly low. So are you saying that the government should be giving more cost of living assistance now? And if you are saying this, what form should that take?</p>
<p>ANGUS TAYLOR:</p>
<p>Well you see, the question you just asked, which is a perfectly reasonable question, I think though, tells us something about how the political culture has changed, which is the idea that if someone gets behind, the only answer is to give the money. Actually, the number one objective here has to be to enable people to get ahead. We have seen a collapse in the standard of living in the last 18 months, which is unprecedented. Let me put this in perspective. The average Australian is $8,000 worse off in terms of real disposable income than they were 18 months ago. Now, that’s the combined impact of prices rising substantially faster than wages, of mortgage rates rising at an extremely rapid rate, 12 times under Labor. And on top of that, we’ve seen very substantial increases in personal income taxes being paid from a combination of bracket creep, and the withdrawal of LMITO. And those things combined have had an enormous impact. Something like 10 times what Labor is proposing here. The only way to solve this problem, Michelle, there is only one way to solve this problem. And that is to strengthen the economy to get back to basic economic management. And to get that standard of living back up for all Australians. There’s no, there’s no handout approach that’s going to bridge the scale of the gap that we’ve seen, or the collapse that we’ve seen in standards of living in the last 18 months. You’ve simply got to get the economy working again, for all Australians, to bridge that gap and get Australians back to where they were.</p>
<p>MICHELLE GRATTAN:</p>
<p>To be fair, though, you would have to say that other factors that have been at play here would be the overseas situation, and also the big aid the former government gave during the pandemic, you would concede that those are at least factors.</p>
<p>ANGUS TAYLOR:</p>
<p>Well, let’s compare Australia with the overseas situation. We haven’t seen anything like that collapse in real disposable incomes in other countries. We are at the extreme end of this. We’ve got an economy now where GDP per capita is going backwards. We’ve seen these very substantial increases in personal income taxes, which we haven’t seen, to the same extent in other countries. We’ve had more persistent inflation, which means that the overall accumulated price rises have been larger than many other countries. And inflation has been more persistent. And it’s, you know, the Reserve Bank governor has said herself, has said that we’ve now in recent months had a situation where the inflation we’re seeing is homegrown. So I do think we are absolutely at the wrong end of this, Michelle, and it shows up very strongly in our Labor productivity performance. Australia’s Labor productivity has been disastrous in the last 18 months.</p>
<p>MICHELLE GRATTAN:</p>
<p>Well, for longer than that, though.</p>
<p>ANGUS TAYLOR:</p>
<p>Well, no, but let me be clear about this. So it’s easy to conflate the two different things. One is the longer term malaise of total factor productivity across - to get technical for second - which is overall productivity in the economy, which has been right across the globe lackluster compared to past decades in recent decades. But the second thing which is very different is a complete collapse in Labor productivity we’ve seen in the last 18 months, and it’s been diabolical. It is a big part of the reason for why we’ve seen labour shortages in workplaces, because if your labour productivity collapses, you need more people to do the same amount of work. So this has been a very, very important factor. We haven’t seen it to the same extent in other countries like the United States. And it’s an important reason why our economy has ground to a halt in per capita terms, and why Australians are seeing this enormous collapse in their disposable income. So what’s the answer here? The answer here is basic, traditional economic management. It’s getting your industrial relations systems right, making sure that employers and employees can sit down and have sensible discussions about how to make their workplaces more productive and raise wages, real wages, at the same time. It’s about making sure that we’re focused on genuine competition, not crony capitalism like we saw with the Qantas affair last year. It’s about making sure that government manages its spending, not spending an extra $209 billion, which is over $20,000 per household, since Labor came to power. It is about making sure that we have a tax system that incent people to invest to take risks, to innovate. All of those things that create prosperity for all of us. It is about making sure you’ve got an immigration system that’s aligned with your housing supply, which we clearly haven’t seen in recent times with a record level of immigration and yet a very clear shortage of housing supply. So all of these things are those economic fundamentals, particularly supply side fundamentals, which were central to having a strong, low inflation economy in the past and will be central to having a strong low inflation economy in the future as well.</p>
<p>MICHELLE GRATTAN:</p>
<p>Just to take up your point about tax, we’re seeing now in the wake of the changes to stage three, many calls for tax reform, and they’re coming from all sorts of quarters. Bill Kelty, for example, former union leader today urged changes, we’ve seen some in the Teals, saying there should be a reform process. Do you agree that the tax system is not fit for purpose? Should it be overhauled? And what is the best way of going about this because it’s a very challenging task.</p>
<p>ANGUS TAYLOR:</p>
<p>Well, we were going about it. Stage three tax cuts were tax reform, they are about incenting people to change their behaviors in positive ways for the economy and for all of us. And this is the point. One problem with the tax reform debate, and I put tax reform in inverted commas, is there’s some very different definitions of tax reform. Some see it as just higher taxes. That’s not tax reform, Michelle, that’s just higher taxes. But for some, that is tax reform, and they could call it that, but actually in reality, it’s higher taxes. As an economist, I was always taught that tax reform was about encouraging and incenting positive behavioural change, which created a more prosperous economy, encouraging economic activity which has benefits for all of us. That is exactly what the stage three tax cuts were designed to do, as part of a three stage process, by the way, they are the stage three tax cuts, which provide a, you know, those three stage in combination provide very significant reforms to our personal income tax system, on which we have relied too much. There’s no question about that. That’s why these reforms were so important. But here is a piece of tax reform, genuine tax reform, which would create a situation where for the vast majority of Australians, they could have complete and utter confidence that if they work harder, they invest, they take risk, all of those things I’ve been talking about, then they get to keep 70 cents in the dollar at least, when they earn those extra dollars, Labor has decided having been part of legislating these reforms, to take them away. Having made commitments between the Treasurer and the Prime Minister over 100 times that they would keep them. So the cries for tax reform, I understand. I have great sympathy with the cries for genuine tax reform. But here we have a very important piece of tax reform that Labor has trashed. And the implications of this for our political culture, I think are diabolical. They are diabolical, Michelle. What stops a Labor politician now committing in the lead up to the next election that they won’t change capital gains on the family home, they won’t change negative gearing, they won’t change franking credits. And yet, as soon as they win an election, they say no, you know, circumstances have changed, we’ll change it. Tax reform is in a dire situation now. But more broadly, I think this is devastating for our political culture.</p>
<p>MICHELLE GRATTAN:</p>
<p>Well, stage three went to changes within the income tax system. But experts, for example, the Secretary of the Treasury, have argued that you really need a change in the mix of tax from weight on direct income tax to more weight on indirect taxes. How do you get that sort of change? And do you agree that that sort of change is necessary?</p>
<p>ANGUS TAYLOR:</p>
<p>That’s exactly what stage three tax cuts were doing. This is the point. The stage three tax cuts, not only did they say that you get to keep 70 cents in the dollar, at least, if you work harder for the vast majority of Australians/ They did a second thing which was very important, which by holding that tax bracket from 45,000 up to 200,000 at 70 cents in the dollar, they said right across that broad tax bracket, there will not be bracket creep, and we will not be relying in future years more on the personal income tax system. In fact, we will be relying less on the personal income tax system. Now, it’s true that some believe we need higher taxes in this country. That’s not a tax reform debate. That’s a tax level debate. And they may argue that you’ve got to go and raise the GST or something else. Fine. That’s up to them. But we believe in lower, simpler, fairer taxes. And importantly, we do believe in less reliance on personal income taxes, and that is exactly what the three stages of tax cuts that we legislated and that Labor has now betrayed the Australian people with a backflip, that those three stages were important in changing the tax mix and ensuring that bracket creep doesn’t change the tax mix on Australians the wrong way without them even knowing.</p>
<p>MICHELLE GRATTAN:</p>
<p>Do you think that Australia is less well placed these days to make economic reform changes than say, we were in the 1980s? And if so, why is that?</p>
<p>ANGUS TAYLOR:</p>
<p>Well, I think we’re less well placed to do it than we were two weeks ago, when you have a Prime Minister and Treasurer, who have legislated a major reform, who have committed to support a major reform over 100 times, have gone to two elections supporting that major reform, and then they backflip, you have lost an enormous amount of political capital between your political leaders and the Australian people. And this is, for me, having come from outside of politics and come into politics in the last 10 years, I think the most dispiriting thing for me of that 10 years has seen the eroding trust between politicians, and the Australian people. And I think this is more generally true of leaders, not just in politics, but across business and other parts of Australian society. And I think it is incumbent on all of us to do everything we can to try to build that, rebuild that trust. But what Albanese and Chalmers have done in the last two weeks, I think is the most damaging instance of eroding that trust I’ve seen in my time in politics. And I have to say, the problem with that, going back to your original question, is that it does make it far harder, far harder for our leaders, I think across all, as I say all parts of the Australian community, to do the hard things that are necessary in order to ensure that we have a prosperous, wonderful country for our children, as we have, as we have inherited ourselves.</p>
<p>MICHELLE GRATTAN:</p>
<p>Of course, a lot of leaders break promises, as we remember over the years. Indeed, I think Bob Hawke quickly broke a promise about tax cuts when he came to power, although he had given himself a bit of a let out. This is not a new phenomenon.</p>
<p>ANGUS TAYLOR:</p>
<p>But I would say to you, and you’re a great historian of Australian political history, have we seen an instance where a Prime Minister and Treasurer committed to something over 100 times, supported the legislation going through the parliament, so these reforms were legislated and went to two elections supporting it, the latter of which there’s a reasonable debate as to whether we might have had a substantially different result if they’d taken a different position in and frankly, I don’t remember a betrayal of the Australian people a breach of trust on that scale. I think this is extremely substantial, at a time, Michelle, and I think this is also important, at a time when reestablishing trust between politicians and the Australian people is important. And in fact, Albanese himself in the lead up to the last election, that that was what he was going to do. Well, frankly, I think that’s a big part of the reason why this backflip is so substantial and so egregious.</p>
<p>MICHELLE GRATTAN:</p>
<p>Now, let’s turn to the economy generally. This week, we’ve had some encouraging figures on the inflation front, inflation’s falling. Are you optimistic or pessimistic about Australia’s economic outlook for this year?</p>
<p>ANGUS TAYLOR:</p>
<p>I am always optimistic about Australia’s longer term economic potential and our position as a country in the world. I am far less optimistic about the position over the short term, because I think we have seen this collapse in Australians’ standard of living - their real disposable incomes - which is showing absolutely no sign of reversing. As I said, three drivers of this, prices rising substantially faster than wages, that has opened up a big gap in real wages over the last 18 months, we’ve seen 12 interest rate increases under Labor. And we’ve also seen as I said, a 27% increase in personal income tax payments over the last 18 months. Now, those things combined lead to about an 8.6% reduction in real disposable incomes, there is no prospect and no plan that he’s going to go even close to reversing that collapse in Australians’ standards of living. And of course absolutely central to the success of our country has been the understanding of the Australian people that if they work hard, they can get ahead and that the tide is rising for all Australians who get out there and have a go. If you’ve seen those sorts of collapses in standards of living, and there’s no real prospects of reversing it, then I think Australians do become pessimistic. And my great concern is that the morale of the Australian people has been substantially impacted by the economic hits that they’ve faced. And you know the wrong reaction to that is to say, well, we’ll rob Peter to pay Paul. The right reaction is to say, no, we’ve got to get back to basic economic management and getting it right on all of those things I listed earlier, I won’t go back through them, are the key to getting us back on track, to reversing that collapse in real disposable incomes and getting back to the position we’ve traditionally been in where our standards of living are continually rising.</p>
<p>MICHELLE GRATTAN:</p>
<p>When we talked with Jim Chalmers on this podcast just before Christmas, he predicted that Australians would be better off than they are now, in a year’s time. You presumably disagree with that assessment?</p>
<p>ANGUS TAYLOR:</p>
<p>Well, I think the real question for Australians, are they they’re gonna get back to the position they were in when Labor came into government.</p>
<p>MICHELLE GRATTAN:</p>
<p>But what about compared to now?</p>
<p>ANGUS TAYLOR:</p>
<p>Well, I don’t think that’s the question that Australians are asking themselves. They’re behind. Of course, they want to get ahead over the next year. There’s no question about that, Michelle, I’m not suggesting that your question is not a relevant one. But my point would be, there is a big gap to bridge. Australians are not used to the idea of going this far backwards this quickly. And they are largely trying to protect their standards of living, and they’re wanting to know whether that standard of living is going to get back to where it was a very short time ago. And I think the answer is there’s no real prospect of that happening. There’s certainly no plan from Labor that is going to reverse what we’ve seen in the last 18 months. And I think that is simply a function of the fact that Labor has no faith in the traditional tools of economic management, and no willingness to pursue them. I mean, their industrial relations agenda is going in exactly the wrong direction. Their competition policy agenda has gone in the wrong direction, the spending profile adding $209 billion of spending is going in the wrong direction. Immigration is outpacing the growth in our housing supply. I’m over here in Perth this week, and their housing supply pipeline is essentially stopped. I mean, it’s hitting the wall, and yet there’s continual growth in population. So these levers are the ones that government needs to focus on. And meanwhile, Albanese has decided the answer is completely different. It’s traditional, very left wing Labor mindset, which is to move money around. Well, that’s not going to solve the underlying problem.</p>
<p>MICHELLE GRATTAN:</p>
<p>Just want to finish off on another topic, you were energy minister in the Morrison government. And we know that the Coalition will have nuclear as part of the energy policy that it takes to the election. Given the trouble that the government is having in some areas of the country even selling plans for wind turbines, won’t selling the idea of nuclear reactors be an enormous ask?</p>
<p>ANGUS TAYLOR:</p>
<p>Well you asked about my time as Energy Minister, I will just do a very short plug on this. You know, we’ve we’re seeing emissions failing to go down, we’ve seen prices going up. And in my time as Energy Minister, we saw a substantial reduction in emissions and a substantial reduction in prices. And it would be, I think, Labor’s failure to achieve those simple outcomes do make it much, much harder for the social licence necessary to do the hard things to continue to provide what I think is necessary, which is lower prices and lower emissions at the same time. In terms of a broader social licence, look, Michelle, the real challenge for Labor’s policy is the scale of what they’re proposing in terms of transmission lines and land to be used for utility scale wind and solar is so enormous compared to what would be required by equivalent gas and nuclear pathway, which is broadly what we’ve suggested is the one we’re working on. The scale of what’s required under Labor is just is many, many, many times greater in terms of the social licence required, and you can seek to get that social licence in rural areas as you crisscross the country with transmission lines and massive utility grade solar and wind, but it’s slow and difficult. And I’ve seen this myself. My electorate has had more of these sorts of projects than most electorates in Australia. And you know, some projects precede some projects don’t proceed. They’ve got to go through state planning processes, they’ve got to go through all the environmental hurdles, etc etc etc. They’ve got to engage with local community. It’s extremely difficult. And so we were much more targeted in our approach to it. We said you’ve got, of course you’ve got to have change in our electricity grid over the coming years. But you’ve got to do everything you can to make those changes realistic and at the same time have a pathway to lower emissions and lower power prices. I don’t think Chris Bowen is even close to having that kind of pathway.</p>
<p>MICHELLE GRATTAN:</p>
<p>I think your electorate might have had those wind turbines that Joe Hockey was so offended by.</p>
<p>ANGUS TAYLOR:</p>
<p>I can’t remember exactly which one.</p>
<p>MICHELLE GRATTAN:</p>
<p>Near Lake George.</p>
<p>ANGUS TAYLOR:</p>
<p>But you know, we’ve had lots of wind projects, some preceded some didn’t, Michelle, we’ve got transmission projects proceeding now. And no doubt if Chris Bowen has his way, there’ll be many more. But I do know how difficult these projects are. And I think Labor has completely underestimated how difficult it is to get the balance, right. I mean, we’ve got Bob Brown down in Tasmania campaigning against one of these major projects, so they are not easy. And so you have to find pathways that are realistic, and I think Chris Bowen lives in a fantasy land about what he thinks is achievable. I am very committed to making sure we have both lower electricity prices and lower emissions, but I’m also pragmatic about what’s achievable and what’s not. And I don’t think Labor has a pragmatic pathway that will be achieved.</p>
<p>MICHELLE GRATTAN:</p>
<p>Angus Taylor, thank you very much for talking with us today in our first podcast for this year.</p><img src="https://counter.theconversation.com/content/222506/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In our first podcast of 2024, Shadow Treasurer Angus Taylor discusses the tax broken promise, where the economy is heading, falling inflation, and more.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2224602024-02-01T00:24:27Z2024-02-01T00:24:27ZWith the economy looking bright enough, the Federal Reserve seems content to play the waiting game<figure><img src="https://images.theconversation.com/files/572543/original/file-20240131-29-ugwtym.jpg?ixlib=rb-1.1.0&rect=43%2C410%2C5783%2C3468&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When will Fed Chair Jerome Powell lower the curtains on the inflation battle?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FederalReservePowell/90516627fabd4f71b1122b964a78a211/photo?Query=jerome%20powell&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=2461&currentItemNo=1">AP Photo/Alex Brandon</a></span></figcaption></figure><p>If there’s one thing you can say about Fed policymakers, it’s that they don’t make decisions on a whim. When the Federal Open Market Committee met on Jan. 31, 2024, it <a href="https://www.nbcnews.com/business/economy/federal-reserve-interest-rate-decision-january-2024-increase-decrease-rcna136429">held interest rates steady</a> – <a href="https://finance.yahoo.com/news/federal-reserve-leaves-interest-rates-unchanged-tempers-expectations-on-rate-cuts-ahead-190255912.html">as most</a> observers expected. That marks six months since the Fed last changed the base rate.</p>
<p>And people should expect to wait a little while more: Fed Chair Jerome Powell <a href="https://www.cnbc.com/2024/01/31/fed-chief-jerome-powell-says-a-march-rate-cut-is-not-likely.html">said a rate cut was “not likely</a>” to come at the next meeting in March. But over the course of his news conference after the meeting, he emphasized that nothing is set in stone.</p>
<p>The Federal Reserve has what is called a <a href="https://www.stlouisfed.org/in-plain-english/the-fed-and-the-dual-mandate">dual mandate</a>: Its job is to achieve maximum employment and keep prices stable. Often there’s a trade-off between these goals: Cutting rates often helps with the former, while lowering them helps with the latter. </p>
<p>And in recent months, controlling inflation has been the focus of Fed policy. In his remarks on Jan. 31, Powell made it clear that Americans shouldn’t expect the Fed to do anything to rates until the U.S. gets <a href="https://sites.lsa.umich.edu/mje/2023/09/04/why-the-2-inflation-target/#:%7E:text=This%20meant%20that%20costs%20only,and%20an%20increase%20in%20prices.">closer to its target of 2% inflation</a>. And that could take some time.</p>
<p>There’s a reason Powell and his fellow policymakers are focused on the 2% inflation target. So long as <a href="https://www.bls.gov/cpi/">consumer price index inflation</a> is above 2%, the concern is that any lowering of interest rates could stimulate the economy too much and reignite inflation. </p>
<p>Still, the <a href="https://www.federalreserve.gov/monetarypolicy/fomc.htm">federal funds rate</a>, which helps determine mortgage and loan rates and quite a bit more, remains at 5.5%, higher than it’s been in 16 years. The Fed has raised rates 11 times since early 2022. </p>
<p>That aggressive rate-hiking has had the desired effect of putting the brakes on the economy. But it comes with some pain for borrowers – and some are now eager to bring rates back down. </p>
<p>Cutting rates usually makes sense when the economy is getting significantly worse, and there’s not much reason to think that’s happening now. Fourth-quarter gross domestic product grew <a href="https://www.bea.gov/news/2024/gross-domestic-product-fourth-quarter-and-year-2023-advance-estimate">3.3% on an annualized basis</a>, ending 2023 on a strong note. The economy added <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">more than 2 million jobs</a> over the course of 2023. And consumer price index inflation is running at <a href="https://www.bls.gov/news.release/pdf/cpi.pdf">about 3.3% in December 2023</a>.</p>
<figure>
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<figcaption><span class="caption">The chair of the Federal Reserve addresses reporters on Jan. 31, 2024.</span></figcaption>
</figure>
<p>“This is a good situation,” Powell said during his news conference. “Let’s be honest: This is a good economy.”</p>
<p>So what comes next? The Fed recently indicated that it expects to cut rates <a href="https://www.bloomberg.com/news/articles/2024-01-11/us-inflation-accelerates-tempering-case-for-fed-to-cut-rates?sref=Hjm5biAW">three times in 2024</a>. But as Powell was at pains to make clear, if the data changes, the Fed’s decision-making will, too.</p>
<p>The labor market data looks relatively sunny. There’s greater balance between the number of people who want jobs and the number of open positions than there was last year. Wage growth looks likely to continue at current rates. So unless there’s a sharp increase in unemployment, which <a href="https://apnews.com/article/retail-sales-december-economy-consumer-spending-800f78ae0a4428be3be7733238d16f40">doesn’t seem likely at the moment</a>, there seems to be little reason to cut interest rates.</p>
<p>There’s always a concern that keeping rates too high for too long may tip the economy into a recession. But recent history doesn’t suggest that will happen. </p>
<h2>Taking the long view</h2>
<p>Taking a historical perspective can be revealing. The 30-year fixed mortgage rate is about 6.6% – high by recent standards. However, back in 1998, the year I bought my first home, the rate was 6.9%. At that time, it was a real deal! </p>
<p>Mortgage rates have been as high as 18% if you go back to 1981. That’s not to say either I or the Fed believe there’s room to increase rates any time soon – just that rates are nowhere near record highs.</p>
<p>Powell did say there’s no reason for any rate increases, so the current Federal funds rate of 5.5% is likely the current cyclical peak. </p>
<p>The next meeting will start March 19. The odds are that the U.S. economy will continue to grow, and inflation will continue to moderate – however slowly. So I would expect the Fed to follow through on Powell’s noncommittal prediction and hold off on cutting rates until later in the year.</p>
<p>So there’s no soft landing yet – Powell said as much. But we look surprisingly close.</p><img src="https://counter.theconversation.com/content/222460/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Decker does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The central bank is ‘really in risk management mode,’ its chairman said.Christopher Decker, Professor of Economics, University of Nebraska OmahaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2206702024-01-31T05:39:02Z2024-01-31T05:39:02ZThe 7 new graphs that show inflation falling back to earth<p>Inflation has fallen for the fourth successive quarter.</p>
<p>Australia’s annual inflation rate fell to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">4.1%</a> in the December quarter 2023, down from 7.8% in the December quarter 2022.</p>
<p>The new rate is the lowest in two years and the closest in two years to the Reserve Bank’s target band of <a href="https://www.rba.gov.au/inflation/inflation-target.html">2–3%</a>.</p>
<p>The decline in inflation exceeded market expectations. Even the Reserve Bank was expecting an inflation rate of <a href="https://www.rba.gov.au/publications/smp/2023/nov/forecasts.html">4.5%</a> in the year to December.</p>
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<p>This quarterly result is consistent with the more experimental and <a href="https://theconversation.com/australias-inflation-rate-is-to-go-monthly-be-careful-what-you-wish-for-188706">volatile</a> monthly measure which also shows annual inflation trending down from a high of 8.4% in the year to December 2022 to just 3.4% in the year to December 2023.</p>
<p>The fresh low is within spitting distance of the Reserve Bank’s target.</p>
<hr>
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<p>Price falls for clothing, household appliances, furniture, and fruit and vegetables have helped bring down inflation recently. </p>
<p>The government has helped by providing subsidies and rebates and other measures that have lowered or slowed the prices of electricity, rent, pharmaceuticals and childcare. </p>
<p>But making the task harder has been sharp rises in insurance charges (up 16.2% during 2023 following natural disasters) and tobacco prices (up 10% in part because of legislated increases in the tobacco excise).</p>
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<p>Even after the government assistance, electricity prices still rose by 6.9%.</p>
<p>With vacancy rates low, and immigration adding to demand, home rents paid continue to rise. They climbed 7.3% over 2023, a figure that was moderated by an increase in the maximum rate of Commonwealth Rent Assistance.</p>
<p>Bureau of Statistics analysis suggests that without the increase in rent assistance, rents paid would have climbed 8.9%</p>
<h2>Even underlying inflation is sliding</h2>
<p>To get a better idea of what would be happening to overall prices were it not for some unusual and outsized moves, the bureau calculates what it calls a <a href="https://www.abs.gov.au/methodologies/consumer-price-index-australia-methodology/dec-quarter-2023">trimmed mean</a> measure of underlying inflation.</p>
<p>This excludes the 15% of prices that climbed the most during each quarter and the 15% that climbed the least or fell. Watched closely by the Reserve Bank, it also shows inflation falling, down to 4.2%.</p>
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<hr>
<h2>Australia gets a US inflation rate</h2>
<p>Inflation also fell during 2023 in other Western nations including the United States, Canada and the United Kingdom. </p>
<p>Australian inflation took a bit longer to fall. Australia’s Reserve Bank, anxious to preserve as much employment as possible, was less aggressive with its interest rate increases. </p>
<p>Nevertheless, Australia’s inflation rate of 3.4% now matches the rates in the US and Canada.</p>
<hr>
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<hr>
<h2>Haircut inflation, dentistry inflation coming down</h2>
<p>A pattern observed across all of these countries is that inflation in the price of goods has come down faster than inflation in the price of services.</p>
<p>Inflation in service prices, driven largely by wages, was slower to climb, but when it did climb took longer to fall, encouraging Reserve Bank Governor Michele Bullock to identify the prices charged by <a href="https://theconversation.com/will-the-rba-raise-rates-again-unless-prices-surge-over-summer-its-looking-less-likely-219197">hairdressers and dentists</a>, as well as restaurants as those that were climbing strongly.</p>
<p>Inflation in the price of services turns out to have been coming down sharply at the time the governor made those comments, falling from 5.8% in the year to September to 4.6% in the year to December.</p>
<p>Inflation in the price of dental services fell from 4.9% to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/dec-quarter-2023/640105.xlsx">4%</a>, inflation in the price of hairdressing services fell from 6.7% to 6.4%, and inflation in the price of restaurant meals fell from 6.1% to 4.6%</p>
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<hr>
<h2>What will matter now is the ‘last mile’</h2>
<p>Some forecasters have suggested that despite the rapid fall in inflation, the “<a href="https://www.ft.com/content/865681af-041c-4b7e-b14d-0f0f193e28ad">last mile</a>” back to the inflation target may take longer. </p>
<p>The <a href="https://www.imf.org/en/Publications/CR/Issues/2024/01/18/Australia-2023-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-543738">International Monetary Fund</a> doesn’t expect inflation to get back to the 2–3% range until early 2026. The Reserve Bank expects it in late 2025.</p>
<p>Mitigating against an early return to target might be the <a href="https://theconversation.com/albanese-tax-plan-will-give-average-earner-1500-tax-cut-more-than-double-morrisons-stage-3-221875">rejigging</a> of the Stage 3 tax cuts to direct more to those on lower incomes who are more likely to spend them, although the <a href="https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-treasury-advice.pdf">treasury</a> and <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/economics-research/WestpacWeekly.pdf">private forecasters</a> expect this effect to be minor. </p>
<p>Accelerating an early return to target is likely to be retail electricity prices which are set to fall in the year ahead driven by what the Australian Energy Market Operator says was a <a href="https://www.smh.com.au/politics/federal/cheaper-renewables-pile-into-grid-and-slash-power-costs-20240124-p5ezp1.html">24%</a> fall in wholesale prices during 2022 driven by a record uptake in renewable generation.</p>
<p>Also contributing to an early return to target is likely to be a fall in inflationary expectations, evident in the Melbourne Institute’s <a href="https://tradingeconomics.com/australia/inflation-expectations">expectations survey</a> and
a decline in the number of Australians searching for the word “<a href="https://trends.google.com.au/trends/explore?date=today%205-y&geo=AU&q=inflation&hl=en">inflation</a>” on Google.</p>
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<h2>Steady ahead for interest rates</h2>
<p>As recently as November, the Reserve Bank forecast an inflation rate of 4.5% for the year to December, and it said after its December board meeting things were developing “<a href="https://www.rba.gov.au/media-releases/2023/mr-23-35.html">broadly in line with expectations</a>”.</p>
<p>It is now clear that wasn’t the case, and that services inflation in particular was falling faster than it thought.</p>
<p>This means it is most unlikely to raise interest rates when it holds its first meeting for the year on Monday and Tuesday, and unlikely to increase them again.</p>
<p>But any cut is likely to be some way off. An awful lot will depend on inflation from here on.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/interest-rates-will-eventually-fall-but-its-a-bit-early-for-borrowers-to-break-out-the-champagne-220038">Interest rates will eventually fall but it's a bit early for borrowers to break out the champagne</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/220670/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins is a former economic analyst and forecaster in the Reserve Bank and Australian Treasury.</span></em></p>On one measure the latest inflation rate is just 3.4%, within spitting distance of the Reserve Bank’s 2–3% target.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2211192024-01-22T23:42:16Z2024-01-22T23:42:16ZI analysed more than 10,000 Reddit posts on supermarket pricing. 5 key themes emerged<figure><img src="https://images.theconversation.com/files/570284/original/file-20240119-21-mkg6j4.jpg?ixlib=rb-1.1.0&rect=0%2C36%2C4819%2C3166&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/vancouver-canada-jun-19-2023-reddit-2320290375">Koshiro K/Shutterstock</a></span></figcaption></figure><p>A Senate inquiry into supermarket pricing, announced last year, is currently taking public <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Supermarket_Prices/SupermarketPrices#:%7E:text=On%206%20December%202023%2C%20the,report%20by%207%20May%202024.">submissions</a> and will report its findings in <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Supermarket_Prices/SupermarketPrices#:%7E:text=On%206%20December%202023%2C%20the,report%20by%207%20May%202024.">May</a>.</p>
<p>The Albanese government, meanwhile, has <a href="https://www.smh.com.au/politics/federal/supermarkets-have-a-duty-albanese-appoints-craig-emerson-to-check-out-food-prices-20240109-p5ew2z.html">appointed</a> former Labor cabinet minister Craig Emerson to review the <a href="https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct">Food and Grocery Code of Conduct</a>.</p>
<p>Coles has <a href="https://www.smh.com.au/politics/federal/supermarket-giants-called-to-face-questions-over-having-too-much-market-power-20231130-p5eo46.html">said</a> it’s “always exploring ways to reduce prices,” while Woolworths <a href="https://www.smh.com.au/politics/federal/supermarket-giants-called-to-face-questions-over-having-too-much-market-power-20231130-p5eo46.html">says</a> it is “working to deliver relief” from high prices. Supply chain costs, inflation, construction costs and energy prices have all contributed to high prices, the major supermarkets say.</p>
<p>But let’s forget the media commentary, the politician sound bytes and the supermarket public messaging for a moment. What are ordinary Australians saying about supermarket pricing? </p>
<p>To find out more, I analysed 10,025 comments made on Reddit using Python programming software. Reddit is a network of online communities where like-minded people can discuss topics of mutual interest. The comments were drawn from the Reddit groups r/australian and r/australia and r/AustralianPolitics. </p>
<p>My research, which is yet to be peer-reviewed, revealed five key themes dominated these discussions.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A Woolworths sign is displayed above a shop entrance." src="https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=408&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=408&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570285/original/file-20240119-16-9gmg5h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=408&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Woolworths says it is ‘working to deliver relief’ from high prices.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/newcastle-australia-february-2018-front-shop-1086821597">haireena/Shutterstock</a></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/amid-allegations-of-price-gouging-its-time-for-big-supermarkets-to-come-clean-on-how-they-price-their-products-219316">Amid allegations of price gouging, it's time for big supermarkets to come clean on how they price their products</a>
</strong>
</em>
</p>
<hr>
<h2>1. ‘ColesWorth’: the two brands knitted together</h2>
<p>These Redditors often used a particular portmanteau in their discussion: “ColesWorth”.</p>
<p>This term, which seems to imply many see no real difference between the two retailers, negatively knits together two brands. It was also interesting to note how often Redditors used the word “they” to refer – fairly indiscriminately – to Coles and Woolworths.</p>
<p>This suggests a real public image problem for Coles and Woolworths, as the actions of one chain come to influence how the other is perceived.</p>
<p>One illustrative Reddit comment said:</p>
<blockquote>
<p>We need to make sure ColesWorth aren’t hurting our citizens.</p>
</blockquote>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A Coles sign is displayed above a shop." src="https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=329&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=329&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=329&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=413&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=413&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570286/original/file-20240119-27-mrs1qj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=413&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The actions of one chain can easily influence how the other is perceived.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sydney-australia-aug-2019-shop-front-1504420667">haireena/Shutterstock</a></span>
</figcaption>
</figure>
<h2>2. ‘Duopoly’ concerns</h2>
<p>Many Redditors expressed concern about what they saw as a duopoly, a term that showed up frequently.</p>
<p>One commenter, for instance, said:</p>
<blockquote>
<p>Who could’ve guessed in Australia we’ve allowed our newspapers to be run by a monopoly, our banks by a Big Four effectively acting like a monopoly, and our supermarkets becoming a duopoly.</p>
</blockquote>
<p>On the Senate inquiry, another said:</p>
<blockquote>
<p>This is good news. This brand duo will certainly feel the heat of more scrutiny, possibly curbing their monopoly in the short term.</p>
</blockquote>
<p>A different Redditor opined:</p>
<blockquote>
<p>Coles and Woolworths’ duopoly should split up, but I doubt that Labor would have the guts, and the LNP (Liberal National Party) wouldn’t do it, so things will return to normal soon enough.</p>
</blockquote>
<h2>3. Perturbed by profits</h2>
<p>Coles and Woolworths made net profits in 2022-23 of <a href="https://www.theguardian.com/business/2023/aug/23/woolworths-posts-162bn-profit-with-dramatic-lift-in-margins-despite-cost-of-living-crisis">A$1.1 billion and A$1.62 billion</a>, respectively. </p>
<p>Many Redditors expressed concern about supermarket profits. One commenter wrote: </p>
<blockquote>
<p>They can charge higher and higher prices for basic necessities, and there’s nothing we can do about it except pay up or starve.</p>
</blockquote>
<p>Another said:</p>
<blockquote>
<p>Big business changes when its customers revolt; in a profit-focused world it’s boycott or accept.</p>
</blockquote>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A screenshot shows Reddit." src="https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570288/original/file-20240119-15-4b4ufn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Reddit is a network of online communities where like-minded people can discuss topics of mutual interest.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-april-20th-2017-homepage-625284344">chrisdorney/Shutterstock</a></span>
</figcaption>
</figure>
<h2>4. The Aldi alternative</h2>
<p>Supermarket chain Aldi, which markets itself as a cheaper alternative to Coles and Woolworths, was frequently mentioned by these Redditors.</p>
<p>One said:</p>
<blockquote>
<p>Coles and Woolworths keep hiking prices for years, but thankfully we have at least Aldi to keep them in check.</p>
</blockquote>
<p>A different Redditor said:</p>
<blockquote>
<p>Woolies prices floored me […] for everyday food items. Ended up going to Aldi instead.</p>
</blockquote>
<p>Another wrote:</p>
<blockquote>
<p>We have greengrocers, butchers and fishmongers for fresh stuff. Aldi or IGA for tinned and dry goods. The best part is if you do this, the price drops for you straight away, and, in theory, for everyone else in time.</p>
</blockquote>
<p>This suggests the stiff competition Woolworths and Coles already face from Aldi (and other alternatives) is not going away any time soon.</p>
<h2>5. Calls for government action</h2>
<p>Many commenters sought government intervention, while others were sceptical it would ever happen or would help.</p>
<p>Some linked the Senate inquiry to similar past investigations in banking, aged care and health, dismissing them as “a waste of taxpayers’ money” that would bring no tangible outcomes.</p>
<p>One commenter wrote: </p>
<blockquote>
<p>Corporations wield more influence than voters over the major parties, and so will continue to get their way as long as this remains.</p>
</blockquote>
<p>Some called for “full federalisation” of supermarkets, the breakup of “monopolies” and even for the arrest of high-level management at Coles and Woolworths.</p>
<p>Many of these proposals seem unlikely but such comments show the depth of consumer anger about supermarket pricing.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Australian prime minister Anthony Albanese addresses media at a press conference." src="https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570289/original/file-20240119-25-ptsagy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Many commenters have called for government intervention on the issue of pricing.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/canberra-australia-sep-22-2022-prime-2218769447">Wirestock Creators/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Why do online conversations about brands matter?</h2>
<p>Clearly, social media doesn’t include everyone in Australia and while the Reddit community is large it isn’t a representative sample of broader Australian society. An element of selection bias is at play.</p>
<p>However, the anger on display in these forums does indicate Coles and Woolworths face difficult brand risks. The advent of the “ColesWorth” phenomenon must be particularly worrying for the two brands, which may now struggle not to be tarred with the same brush even if they make radical changes to differentiate themselves from their competitors.</p>
<p>The comments I analysed show the supermarket pricing story is not just a media beat-up. People are talking about the issue, suggesting a shift to supporting local or cheaper businesses and calling for government action on pricing.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/as-australian-supermarkets-are-blamed-over-food-costs-french-grocer-carrefour-targets-pepsi-for-unacceptable-price-rises-220646">As Australian supermarkets are blamed over food costs, French grocer Carrefour targets Pepsi for 'unacceptable' price rises</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/221119/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kanika Meshram does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Supermarket pricing is a big story but let’s forget the media coverage, the politician sound bytes and the corporate PR for a moment. What are ordinary Australians saying about supermarket pricing?Kanika Meshram, Lecturer in Marketing, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2204442024-01-22T10:57:00Z2024-01-22T10:57:00ZInflation: how a different approach could ease the burden of the cost of living crisis<figure><img src="https://images.theconversation.com/files/570024/original/file-20240118-29-c6xyx6.jpg?ixlib=rb-1.1.0&rect=89%2C145%2C7398%2C4839&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/rising-arrow-against-uk-flag-power-2198595815">Viktollio/Shutterstock</a></span></figcaption></figure><p>The latest annual inflation rate <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2023">rise to 4%</a> has <a href="https://www.ft.com/content/42c4bece-abd9-4e02-a403-66f1a29647b4">dampened expectations</a> about how soon the Bank of England might start cutting interest rates. Marginally higher than the previous month’s figure of 3.9%, it was <a href="https://www.ft.com/content/42c4bece-abd9-4e02-a403-66f1a29647b4">a surprise</a> to some economists. </p>
<p>This adds to the economic uncertainty which may make the Bank move cautiously. The impact of the war in the Middle East, and Houthi <a href="https://theconversation.com/red-sea-crisis-suez-canal-is-not-the-only-choke-point-that-threatens-to-disrupt-global-supply-chains-221144">attacks in the Red Sea</a> on shipping on transport costs and supply chains remains unclear, for example. And then there is the decrease in UK job vacancies and the <a href="https://www.theguardian.com/business/2023/dec/12/uk-pay-growth-job-vacancies-interest-rates">slowdown in wage increases</a> to consider before interest rates start heading downwards.</p>
<p>But perhaps the Bank’s apparent focus on cooling down the economy via high interest rates is the wrong way to tackle inflation. Our work looks at a <a href="https://peri.umass.edu/images/Onaran-PERI-Inflation-Conf-WP.pdf">different approach</a> which would use a much <a href="https://academic.oup.com/cje/article-abstract/47/4/703/7237926?redirectedFrom=fulltext&login=false">wider range of considerations</a> including investment, industrial priorities, labour market policy and tax rates. </p>
<p>We describe it as a “needs-based” approach to inflation and government policy, because it is designed to address specific social, environmental and economic requirements. It means asking questions about things such as how much investment we need in renewable energy, public transport and housing to achieve a zero-carbon economy by 2050? Or how many care workers will help meet changing demographic trends – and what is a decent rate of pay for the valuable work they do? </p>
<p>Identifying these needs, and the right level of investment to satisfy them, also requires a different approach to politics more generally – because it demands a concerted effort towards learning what the UK population needs. It means directly <a href="https://citizensecon.org.uk/">engaging with citizens</a> (through regional assemblies or surveys for example) and using their knowledge and experience to inform decisions. This information can then be used to formulate policies both fiscal (by the governement) and monetary (by the Bank of England). </p>
<p>It sounds like a simple and obvious idea – finding out what people actually need, and then developing policies which might help them. But the government’s current fiscal targets – lower borrowing, lower debt, a cap on welfare spending – and the Bank of England’s strategy of aiming for an <a href="https://www.bankofengland.co.uk/monetary-policy/inflation">inflation rate of 2%</a> are far removed from these goals. </p>
<p>Instead, they are blunt tools which are failing to tackle multiple crises. But if fiscal policy was tied to a major public investment programme, <a href="https://academic.oup.com/cje/article-abstract/47/4/703/7237926?redirectedFrom=fulltext&login=false">research suggests</a> it could help to tackle major issues such as social care, health, education, food, energy and climate change. </p>
<p>For this approach to work, the Bank of England <a href="https://committees.parliament.uk/writtenevidence/23107/html/">needs to adjust to an inflation target</a> that moves within a band of around 4%-5%. But it also needs to be involved with an area outside its current remit – achieving a full (or very high) rate of employment, which brings clear <a href="https://academic.oup.com/cje/article-abstract/47/4/703/7237926?redirectedFrom=fulltext&login=false">economic benefits</a> such as increased productivity and greater tax revenue. </p>
<figure class="align-center ">
<img alt="Wind turbines in rural setting." src="https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=352&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=352&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=352&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=442&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=442&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570095/original/file-20240118-22-old0n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=442&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Green investment opportunities.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/concept-idea-eco-power-energy-wind-1040226574">lovelyday12/Shutterstock</a></span>
</figcaption>
</figure>
<p>Central banks can influence employment rates by using the money supply to maintain stable prices as well as supporting public and private investment that leads to job creation. Targeting employment as well as inflation would require monetary policy to take into account public investment plans, as well as <a href="https://academic.oup.com/cje/article-abstract/47/4/703/7237926?redirectedFrom=fulltext&login=false">higher taxes on income and wealth</a> to fund it. </p>
<h2>Inflating inflation for the general good</h2>
<p>And given the high levels of required investment in both the green and the care economies, monetary policy needs to be more “expansionary”. This effectively means lower interest rates and increasing the money supply, which would lead to inflation rates being higher than 2%. </p>
<p>After all, the current 2% inflation target and recent interest rate hikes have <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/quarterlynationalaccounts/julytoseptember2023">not been good for the UK economy</a>. And while many people might be alarmed at the idea of an inflation target of 4%-5%, the impact would actually have benefits. </p>
<p>A more vibrant economy with new investment in social housing, renewable energy, public transport, health care, childcare, education, decent jobs <a href="https://www.researchgate.net/publication/345412570_The_effects_of_income_distribution_and_fiscal_policy_on_aggregate_demand_investment_and_the_budget_balance_the_case_of_Europe1">and pay rises could reverse</a> the decades-long squeeze on real wages.</p>
<p>To absorb the effects of potential temporary cost shocks cause by higher inflation, <a href="https://peri.umass.edu/images/Onaran-PERI-Inflation-Conf-WP.pdf">some economists</a>) suggest using price controls in <a href="https://scholarworks.umass.edu/econ_workingpaper/340/">vital sectors</a> such as energy, housing, food and transportation.</p>
<p>Meanwhile, the Bank of England’s determination to reach 2% inflation target has cost millions of households dear. And it does not seem to be consistent with sound economic planning. Raising it to a band around 4%-5% would allow for urgent and large scale public investment – and an end to the cost of living crisis.</p><img src="https://counter.theconversation.com/content/220444/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Özlem Onaran received funding from ESRC Rebuilding Macroeconomics, International Trade Union Confederation, Women’s Budget Group, American University, the Institute for New Economic Thinking, the Foundation of European Progressive Studies, the Vienna Chamber of Labour, and Unions21.</span></em></p>We should not be afraid of inflation being higher than 2%.Özlem Onaran, Professor of Economics, University of GreenwichLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2209892024-01-11T23:03:10Z2024-01-11T23:03:10ZWhen can we stop worrying about rising prices? The latest inflation report offers no easy answers<figure><img src="https://images.theconversation.com/files/568931/original/file-20240111-29-4eets5.jpg?ixlib=rb-1.1.0&rect=0%2C6%2C2136%2C1389&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Aisle be damned! Inflation is proving stubborn as the economy moves into 2024.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/handsome-asian-male-searching-for-groceries-from-royalty-free-image/1437990851?phrase=inflation+worry&adppopup=true">miniseries via Getty Images</a></span></figcaption></figure><p><em>Tired of thinking about inflation’s impact on your wallet? You’re not alone. But like it or not, higher prices continue to be an economic and – with the presidential race – a political issue as we enter the early months of 2024.</em></p>
<p><em>The Conversation asked two <a href="https://www.sciencedirect.com/science/article/pii/S0929119921002406">financial economists</a>, <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ">D. Brian Blank</a> at Mississippi State University and Appalachian State University’s <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ">Brandy Hadley</a>, what they make of the <a href="https://www.bls.gov/news.release/cpi.toc.htm">inflation report</a> that dropped on Jan. 11, 2024, and whether there might be a time before too long when we can all stop worrying about increasing costs.</em></p>
<h2>Was inflation higher or lower in December 2023?</h2>
<p>Both, unfortunately. </p>
<p><a href="https://www.rba.gov.au/education/resources/explainers/inflation-and-its-measurement.html">Economists have many ways</a> of measuring how prices change over time. Two key measures are overall, or “headline,” inflation, which tracks the prices for a basket of goods and services, and “core” inflation, which tracks many of the same items but excludes those with unusually jumpy prices, such as gasoline. </p>
<p>In the Bureau of Labor Statistics’ Jan. 11 report, which measured how much prices changed in December 2023, these indicators <a href="https://www.bls.gov/news.release/pdf/cpi.pdf">moved in different directions</a>. In other words, the higher one, core CPI – short for consumer price index – declined from an annual rate of 4% in November to 3.9% in December. And the lower one, headline inflation, rose from 3.1% to 3.4%.</p>
<p>While previously <a href="https://twitter.com/LizAnnSonders/status/1745448037105963151/photo/1">falling prices</a> for clothing, alcohol, new vehicles and gas <a href="https://twitter.com/LizAnnSonders/status/1745448037105963151">reversed course</a> in December, core inflation finally fell below 4.0%.</p>
<h2>But what does all this inflation confusion mean?</h2>
<p>What everyone wants to know is when will inflation go back to normal, or at least closer to the Federal Reserve’s target of 2%. And while no one knows the answer, <a href="https://fortune.com/2023/12/15/congressional-budget-office-inflation-unemployment-2024-2025/">there are reasons to believe</a> <a href="https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202401">it may</a> <a href="https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_real_yield_curve&field_tdr_date_value_month=202401">happen soon</a>.</p>
<p>At this point, people should be <a href="https://www.goldmansachs.com/intelligence/pages/gs-research/macro-outlook-2024-the-hard-part-is-over/report.pdf">less worried about inflation</a> than they were in December 2022, when the <a href="https://fred.stlouisfed.org/graph/?g=rocU">headline figure was 6.4%</a>. While inflation is still higher than we have gotten used to over the past decade, it’s much lower than it has been over the past couple of years. </p>
<p>Hopefully, that indicates the Federal Reserve is <a href="https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-tapering-asset-purchases.html">approaching the end of its battle</a> with inflation and may be able to <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2023/11/bofa-global-research-calls-2024--the-year-of-the-landing--.html">finally lower interest rates</a> later this year. Over the past two years, the <a href="https://www.cnbc.com/2023/12/13/the-federal-reserve-held-rates-steady-heres-what-that-means-for-you.html">central bank has raised rates 11 times</a> to tame consumer demand and prices.</p>
<p>But concerns remain about inflation persisting. <a href="https://www.gzeromedia.com/podcast/podcast-trouble-ahead-the-top-global-risks-of-2024">One risk factor</a> is <a href="https://www.lazard.com/research-insights/global-outlook-2024/">the impact that conflicts</a> in <a href="https://www.ssga.com/library-content/assets/pdf/global/global-market-outlook/2023/gmo-2024-full.pdf">Ukraine and now the Middle East</a> will have <a href="https://www.privatebank.bankofamerica.com/articles/what-rising-geopolitical-tensions-could-mean-for-the-markets-and-economy.html">on trade routes</a>, such as <a href="https://www.cnbc.com/2024/01/11/red-sea-crisis-could-jeopardize-inflation-fight-as-shipping-costs-spike-globally.html">those in the Red Sea</a>. Another area of concern may be <a href="https://twitter.com/biancoresearch/status/1745502587854709054/photo/1">home prices</a>, which builder <a href="https://finance.yahoo.com/quote/KBH/">KB Homes</a> reports <a href="https://www.barrons.com/articles/kb-homes-fourth-quarter-earnings-outlook-eb236fe0">may be rising more this year</a>.</p>
<p>Those worries could lead the Fed to wait <a href="https://abcnews.go.com/Business/inflation-expected-risen-slightly-december/story?id=106222654">just a bit longer</a> to make any big decisions on <a href="https://twitter.com/LizYoungStrat/status/1745495575070429639/photo/1">whether to ease off</a> the brakes any time soon.</p>
<h2>So why did headline inflation tick higher?</h2>
<p>Overall inflation came in higher than forecasts largely due to <a href="https://www.wsj.com/livecoverage/stock-market-today-cpi-report-inflation-01-11-2024/card/the-rent-is-too-damn-high-jCrjio72Nbm7L0TEaonc">the rising price of housing</a>.</p>
<p>Rent accounts for a <a href="https://www.reuters.com/markets/us/us-consumer-prices-unexpectedly-rise-november-2023-12-12/">huge part of inflation</a>, since it’s one of many people’s largest expenses. However, CPI is calculated using rental data over the past year, which means the <a href="https://en.macromicro.me/collections/5/us-price-relative/49740/us-cpi-rent-zillow-rent-yoy">data lags behind real-time rent changes</a>. What’s more, real estate marketplace Zillow’s estimates of rent <a href="https://www.zillow.com/research/december-2023-rent-report-33579/">are falling</a> – a trend that’s expected to continue as <a href="https://twitter.com/jayparsons/status/1742925447409947099/photo/1">more apartments are built this year</a>.</p>
<h2>What matters to people: Prices or inflation?</h2>
<p>Even though inflation is slowing, costs are <a href="https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator/consumer-price-index-1913-">18% higher than four years ago</a> and aren’t falling, which makes many people less optimistic about the economy than before the pandemic.</p>
<p>Some Wall Street forecasters and economists <a href="https://theconversation.com/economic-lookahead-as-we-ring-in-2024-can-the-us-economy-continue-to-avoid-a-recession-220007">struggle to understand people’s concerns</a> when labor markets are strong and the <a href="https://www.bnymellonwealth.com/content/dam/bnymellonwealth/pdf-library/articles/BNY_CMA_V4.4_21Nov2023.pdf">stock market is rising</a>. Still, consumer prices are near <a href="https://www.bls.gov/news.release/cpi.nr0.htm">all-time highs</a>, which is neither exciting for most people nor surprising to economists given that prices typically rise over time.</p>
<p>Despite high expenses, people still have a <a href="https://www.troweprice.com/content/dam/iinvestor/resources/insights/pdfs/tectonic-shifts-create-new-opportunities.pdf">degree of disposable income</a>. The cost <a href="https://wpde.com/news/nation-world/groceires-vs-going-out-what-may-be-behind-the-price-difference-consumer-price-index-food-home-away-sean-snaith-economic-forecasting-grocery-cost-servers-restaurants-wages-pay-thanskgiving-dinner">to eat out continues</a> to increase three times as fast as the <a href="https://www.businessinsider.com/food-prices-cheapest-option-groceries-restaurants-fast-food-2023-12">cost to eat at home</a>, which is both one of the largest differences on record and evidence that people <a href="https://www.pymnts.com/economy/2023/budget-constrained-consumers-prioritize-dining-out/">still have income to spend eating out</a>. </p>
<p>That shows the <a href="https://twitter.com/ConversationUS/status/1742516107133558804">mismatch between consumer behavior and “vibes”</a>: Americans <a href="https://fred.stlouisfed.org/series/CPIRECSL">have the money</a> to travel and go to restaurants, but still complain about <a href="https://www.bls.gov/news.release/cpi.t02.htm">airfare and menu prices</a>. </p>
<h2>When can we stop talking about inflation?</h2>
<p>We may have to wait until people stop feeling the <a href="https://www.privatebank.citibank.com/doc/investments/outlook/Citi_Wealth-Outlook-2024.pdf.coredownload.inline.pdf">inflation impacts</a> before they stop wanting to complain about it – and focus on it – each month. Could the Fed stop the inflation preoccupation <a href="https://saf.wellsfargoadvisors.com/emx/dctm/Research/wfii/wfii_reports/Investment_Strategy/outlook_report.pdf">by lowering rates</a>? Or does the Fed need to <a href="https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/mi-investment-outlook-uk-en.pdf">hold rates higher</a> for longer? <a href="https://www.morganstanley.com/ideas/global-investment-strategy-outlook-2024">Only time will tell</a>.</p><img src="https://counter.theconversation.com/content/220989/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two important inflation indicators are trending in different directions. What gives?D. Brian Blank, Associate Professor of Finance, Mississippi State UniversityBrandy Hadley, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, Appalachian State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2166202024-01-04T20:01:24Z2024-01-04T20:01:24ZUntil now, sellers have used AI to get the best deal for themselves – those tables are about to turn<figure><img src="https://images.theconversation.com/files/563223/original/file-20231204-17-kex550.png?ixlib=rb-1.1.0&rect=639%2C55%2C3322%2C1329&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/artificial-intelligence-aimachine-learning-data-mining-1218220324">Shutterstock</a></span></figcaption></figure><p>It’s no accident we are seeing record profits from some of our biggest consumer-facing companies, among them <a href="https://www.abc.net.au/news/2023-08-24/qantas-profit-2023-annual-results-alan-joyce/102763766">Qantas</a> andthe <a href="https://www.theguardian.com/news/2023/aug/09/commonwealth-bank-posts-record-1016bn-profit-amid-rising-stress-for-borrowers">big four banks</a>.</p>
<p>They are among the firms - alongside our grocery duopoly - investing the most in artificial intelligence in the form of <a href="https://www.theaustralian.com.au/business/technology/sam-altmans-openai-battle-is-fight-for-ais-future/news-story/4bcf77cc9f95309b713de863a3f16cbe">data analytics</a> and machine learning. </p>
<p>Their investments include staff – often hundreds of data scientists – plus information technology systems and external consultants. </p>
<p>It isn’t cheap, and ultimately much of it will be paid for by customers.</p>
<p>While some of the initiatives target costs by improving planning and reducing waste and fraud and theft, most target revenue via marketing and personalisation with the aim of getting the best deals to the customers who insist on them and the worst deals to the customers who will buy anyway.</p>
<p>To the extent that these firms are successful in charging different prices to different customers, it’s a fair bet they are keeping up the cost of living.</p>
<p>In simpler times, only a few customers needed to do the hard yakka of comparing the prices displayed in shops or on websites and voting with their feet in order to force sellers to keep published prices in check for everyone. </p>
<p>Now, there’s often no such thing as a single published price.</p>
<p>Booking a holiday now comes with a bewildering set of frequent flyer rules, hotel loyalty programs, credit card points, cashback offers, possibly buy-now pay-later options, and vouchers and coupons sprinkled across social media.</p>
<h2>Comparing prices has become next to impossible</h2>
<p>Retailers, airlines, phone companies and insurers use sophisticated machine learning algorithms and real-time experiments to continuously tweak the prices and deals they offer <a href="https://theconversation.com/how-qantas-might-have-done-all-australians-a-favour-by-making-refunds-so-hard-to-get-213346">individual customers</a>, meaning there is often no such thing as a standard price.</p>
<p>(The fact they refer to what they are doing as offering discounts doesn’t change the reality that what they are doing is charging higher prices to the customers least likely to notice or complain.) </p>
<p>To succeed at this game requires vast amounts of customer data, which they have via loyalty schemes and information about past online purchases but their customers do not. That’s about to change.</p>
<h2>AI is starting to turn the tables</h2>
<p>For some time now online communities of “<a href="https://www.pointhacks.com.au/">points hackers</a>” have been running massive spreadsheets squeezing out the best deals for shoppers and swapping tips. </p>
<p>But for most of us, it hasn’t seemed worth the effort – so much so that for four years the Victorian government offered a <a href="https://compare.energy.vic.gov.au/psb-faq">$250 Power Saving Bonus</a> to residents who simply put their name and email address into a price-comparison website.</p>
<p>But there’s something that does tedious mind-numbing chores extremely well. It’s artificial intelligence of the kind that only became widely available a year ago with the launch of <a href="https://openai.com/chatgpt">ChatGPT</a>.</p>
<p>Already, websites are offering AI assistants or “copilots” to pore over our financial records and scour the web, tirelessly haggling with providers’ automated copilots on our behalf. </p>
<p>These new <a href="https://www.platformer.news/p/how-openai-is-building-a-path-toward">agents</a>, with names like <a href="https://plugin.surf/plugin/comparison">Comparison</a> and <a href="https://web.meetcleo.com/haggle-it">Haggle It</a> use information about our long-term spending patterns, preferences and broad financial goals to benefit us rather than the firms who are trying to sell things to us.</p>
<p>ChatGPT already has <a href="https://mashable.com/article/expedia-kayak-openai-chatgpt-plugins">travel plug-ins</a> from providers that can take vague instructions about your timing, preferred locations and budget and build an itinerary with links for buying.</p>
<p>The next step – not far away – will see it negotiating purchases on our behalf that strike the right balance of points, cashback, miles and vouchers across multiple providers and transactions in a way that will make even the most obsessive points hacker swoon.</p>
<p>There are already <a href="https://openai.com/blog/chatgpt-plugins">ChatGPT plug-ins</a> for e-commerce, restaurants and groceries. </p>
<h2>Prepare for haggle-bots, that work for us</h2>
<p>Around the world, new and established firms are building Generative AI applications for optimising our household budgets and personal finances across ever-expanding categories. </p>
<p>A recent survey from Credit Karma found <a href="https://www.foxbusiness.com/technology/consumers-want-ai-help-manage-their-personal-finances-study">43%</a> of United States residents would be happy for an artificial intelligence bot to manage their personal finances to reduce their money problems.</p>
<p>Comparison shopping is the cornerstone of a well-functioning market economy, helping moderate profits and keeping costs down. </p>
<p>While the last wave of AI was used by big companies to make that task harder, the next wave is about to put that technology in the hands of consumers. </p>
<p>It is set to force our oligopolies to compete in ways they’ve not been used to, putting downward pressure on prices rather than helping keep them high.</p>
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Read more:
<a href="https://theconversation.com/hotel-booking-sites-actually-make-it-hard-to-get-cheap-deals-but-theres-a-way-around-it-196460">Hotel booking sites actually make it hard to get cheap deals, but there's a way around it</a>
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<img src="https://counter.theconversation.com/content/216620/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory Hill does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>AI is tireless, knows more about the big companies than we do, and will relentlessly pursue our interests.Gregory Hill, Adjunct Lecturer, Centre for Business Analytics, Melbourne Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2181182024-01-03T20:27:31Z2024-01-03T20:27:31ZThe cost-of-living crisis is hitting hard. Here are 3 ways to soften the blow<figure><img src="https://images.theconversation.com/files/562608/original/file-20231130-17-o8fryb.jpg?ixlib=rb-1.1.0&rect=0%2C24%2C8256%2C5462&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>As our wallets feel the strain from the cost-of-living crisis, many of us are looking for ways to soften the blow.</p>
<p>While everyone’s circumstances are different, and ideally you should seek help from an accredited financial adviser, there are some tried and true ways to work out where all your money is going and why.</p>
<p>Here are three practical tips to reduce the impact of the cost-of-living increases, and stretch every hard-earned dollar.</p>
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<h2>1. Hunt for a better loan rate</h2>
<p>For many households, the biggest hit comes from the mortgage, so start there.</p>
<p>Even a modest 0.5% reduction can translate into substantial savings. Call your bank today and just ask for rate reduction. If the answer is no, consider shopping around for a different lender.</p>
<p>Your loyalty to your current lender might be costing you more than you realise. Banks often reserve their most attractive rates for new customers, leaving long-time customers paying higher-than-necessary interest.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A woman looks at her phone while sitting in a chair." src="https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562601/original/file-20231130-23-eyet8z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">It’s OK to shop around for a different lender.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>Even if your bank does agree to a rate reduction, explore the market anyway. There is a range of free rate-comparison websites, or you can directly check individual bank websites.</p>
<p>If you find a lender offering a better rate, you might consider calling the competing bank to ask about switching your mortgage to them. </p>
<p>Or, you might seek assistance from a mortgage broker, who can guide you through the process of securing a better deal (just remember they often take <a href="https://www.canstar.com.au/home-loans/mortgage-brokers-fees/">commissions</a> from lenders).</p>
<p>Tread carefully and factor in any exit fees or charges from your current lender. Refinancing isn’t without risk, so a thorough cost-benefit analysis is important before making the switch.</p>
<p>Also consider the value of features such as <a href="https://moneysmart.gov.au/glossary/offset-account">offset accounts</a>. An offset account, linked to your home loan, allows you to deposit money such as your salary and savings. This money is then “<a href="https://www.rba.gov.au/publications/smp/2015/aug/box-e-offset-account-balances-and-housing-credit.html">offset</a>” against your home loan balance. </p>
<p>That means you only pay interest on the outstanding amount (the loan minus whatever salary and savings you put in the offset). This can accelerate loan repayment and reduce interest costs.</p>
<p>Keep in mind that offset accounts are typically only available with variable interest rates. Offset accounts work best if you have considerable savings to put into the offset account that outweigh the additional fees and charges attached to offset accounts. </p>
<h2>2. Trim your expenses and uncover hidden savings</h2>
<p>It’s time to become a budget detective, identifying and cutting down on non-essential costs that might be quietly draining your wallet.</p>
<p>Take a close look at those recurring memberships and subscriptions. How often do you actually use that gym membership or streaming service?</p>
<p>Many banking apps have handy spending tracking features to help you set realistic budget goals for each spending category. </p>
<p>According to the <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/selected-living-cost-indexes-australia/latest-release">Australian Bureau of Statistics</a>, insurance and financial services are among the top risers in living cost indexes (which measure the price change of goods and services and its effect on living expenses). So search comparison websites for better insurance premiums. </p>
<p>Australia’s insurance market is competitive, and you can often get discounts by bundling your insurances together (for example, having your home and contents insurance with the same company that also provides your car insurance). However, don’t shy away from exploring different insurers for potentially better value.</p>
<p>Don’t overlook energy costs, either. Use comparison websites like <a href="https://www.energymadeeasy.gov.au/">Energy Made Easy</a> (or, if you’re in Victoria, the <a href="https://compare.energy.vic.gov.au/">Victorian Energy Compare</a> site) to find more cost-effective energy plans. Stay updated on rebates and concessions via the federal government’s <a href="https://energy.gov.au">Energy.gov.au</a> site, to ensure you’re maximising your entitlements.</p>
<p>Use less energy, if you can. Small adjustments can make a significant dent in your bills. And for fuel costs, find websites and applications that allow you to lock in the lowest prices in your area.</p>
<p>If you’re renting, ask yourself whether moving to a cheaper suburb or a cheaper home is an option.</p>
<p>Many people use cashback sites like Cashrewards and ShopBack to accrue cashback incentives.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A woman does exercise in front of the TV." src="https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=409&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=409&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562883/original/file-20231201-29-3rsnw1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=409&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Do you get good value from your gym membership or could you save by exercising at home?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/fitness-online-stay-home-workout-class-1680844543">Shutterstock</a></span>
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<h2>3. Maximise returns and tackle high-interest debts</h2>
<p>While rising interest rates might make your mortgage climb, it also means high interest on your savings.</p>
<p>Consider exploring high-yield savings accounts; with current interest rates, you could potentially earn around 5.5% with a bank savings account. Many people set up recurring transfers to help them stick to savings goals, increase deposits and maximise interest earnings.</p>
<p>For those wrestling with high-interest debts such as credit cards or personal loans, prioritise settling outstanding balances to minimise interest payments.
It can be hard to escape the long-term repercussions (such as a <a href="https://theconversation.com/payday-lending-trap-requires-a-credit-supply-rethink-39311">poor credit score</a>) of defaulting on <a href="https://www.sydney.edu.au/news-opinion/news/2022/09/21/researchers-uncover--pecking-order-of-defaults--as-belts-tighten.html">high-interest loans</a>.</p>
<p>And approach buy-now, pay-later services with extreme caution. They may seem tempting but the <a href="https://onlinelibrary.wiley.com/doi/10.1111/acfi.13100">debts can quickly add up</a>.</p>
<p>And if you need more help, contact the government’s free National Debt Helpline on 1800 007 007.</p><img src="https://counter.theconversation.com/content/218118/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ama Samarasinghe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Small adjustments can make a significant difference.Ama Samarasinghe, Lecturer, Financial Planning and Tax, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2198572023-12-19T16:54:29Z2023-12-19T16:54:29ZInterest rates have stopped rising, but 2023 hikes could still cause recession for some economies<figure><img src="https://images.theconversation.com/files/566140/original/file-20231217-29-oomab8.jpg?ixlib=rb-1.1.0&rect=40%2C17%2C2946%2C1949&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Central banks in the US, UK and Europe have been trying to slow inflation without creating a recession.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/inflation-reduction-act-by-fed-federal-2218228849">eamesBot/Shutterstock</a></span></figcaption></figure><p>Central banks on both sides of the Atlantic kept their main interest rates unchanged for the fourth successive month in December 2023. These rates are closely watched because they set the minimum interest at which your bank borrows and lends. This determines the cost of credit for all firms and households with mortgages or other loans. </p>
<p>The European Central Bank (ECB), the US Federal Reserve and the UK Bank of England have raised interest rates sharply since the start of 2022. This was in response to a surge in inflation – the annual increase in consumer prices – far above the 2% rate that all these central banks now target. </p>
<p>But UK inflation is taking longer to respond than that of the US or EU. This has renewed debate over <a href="https://theconversation.com/interest-rate-hikes-are-not-the-only-tool-to-fight-uk-inflation-heres-what-the-government-should-do-208697">whether rate cuts are the best or only way</a> to keep inflation under control. It has also caused a shift in opinions about which western economies are most at risk of recession in 2024.</p>
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Read more:
<a href="https://theconversation.com/is-the-uk-in-a-recession-how-central-banks-decide-and-why-its-so-hard-to-call-it-191237">Is the UK in a recession? How central banks decide and why it's so hard to call it</a>
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<p>Higher interest rates are designed to subdue inflation by reducing the amount people spend. Businesses and households are expected to save more when rates rise, in anticipation of greater interest payments (<a href="https://theconversation.com/interest-rates-why-your-mortgage-payments-are-going-up-but-your-savings-arent-and-how-better-monetary-policy-could-help-196528">although that doesn’t always happen</a>). It’s also hoped they’ll borrow less because of the extra interest they would be charged. Those with outstanding loans are left with less to spend on goods and services after paying their interest bill. </p>
<p>Governments are also affected. In the UK, interest on around a quarter of government debt is now <a href="https://www.nao.org.uk/press-releases/managing-government-borrowing/#:%7E:text=The%20type%20of%20debt%20that,to%20lenders%20rise%20with%20inflation.">linked to inflation</a>. This means more of the budget gets channelled into interest payments, leaving less to spend on public services, when the central bank raises rates.</p>
<p>This restraint doesn’t happen immediately, however. When borrowers take out fixed-rate loans, they aren’t affected by higher base rates until the deal expires. Almost a million UK borrowers, for example, are still on fixed rates of 2% or below that will only <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/housing/articles/howincreasesinhousingcostsimpacthouseholds/2023-01-09">come up for renewal</a> – at current, higher rates – in the first quarter of 2024. The resulting delay of a year or more before past interest rate rises kick in makes it hard for central bankers to know when they’ve raised rates enough to cool the economy.</p>
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<strong>
Read more:
<a href="https://theconversation.com/uk-bonds-have-hit-a-25-year-high-heres-what-that-means-for-the-economy-215188">UK bonds have hit a 25-year high – here's what that means for the economy</a>
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<p>Raising interest rates can also restrain inflation by encouraging foreign investors to buy bonds and other financial assets in a country’s currency. The resulting inflow of capital is likely to strengthen its exchange rate. This makes imports cheaper and can help to slow the overall rise in prices. </p>
<p>A stronger currency is especially effective for curbing inflation for economies that consume a high proportion of imports, such as the UK. But it also hurts exporters, and only works if interest rates rise above those of comparable economies. This may be one reason why the Bank of England has raised its interest rates faster and further than the ECB since February 2022.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing the main central bank rates for UK, US, Europe staying low from 2012-2016 (except the US) and then rapidly rising at the end of 2021. Also shows Japan, which has stayed low thoughout." src="https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/566141/original/file-20231217-15-zjp7ej.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.statista.com/chart/21070/main-policy-interest-rates-in-selected-countries-and-regions/">Statista</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<h2>Divergence ahead</h2>
<p>Although they hiked rates in similar fashion in 2022-23, these central banks are set to go different ways in 2024. </p>
<p>US rates are set to fall as inflation drops back towards the 2% target, having already slowed to 3.1% in November 2023 (from 6.4% in January). The US Federal Reserve has signalled two likely interest rate reductions, totalling 0.75%, in 2024. That’s falling into line with investors’ expectations, which can be gauged by the prices they’re prepared to pay for <a href="https://www.chathamfinancial.com/insights/what-is-a-forward-curve">trading or swapping</a> debt due at a future date and by interest rates on <a href="https://data.oecd.org/interest/long-term-interest-rates-forecast.htm">government bonds that mature several years from now</a>.</p>
<p>While the ECB’s forward guidance is less clear, its governor <a href="https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is231214%7Edf8627de60.en.html">has hinted at</a> a similar downward path in 2024 because projections now point to headline inflation dropping to 2.1% in 2025 – a year earlier than previously predicted. Eurozone inflation has already slowed sharply, to 2.4% in November from 8.5% in February 2023, despite the ECB keeping its interest rates lower than the US and UK throughout the recent tightening phase. That’s largely because, even though member states set their own fiscal policy, EU rules keep them on <a href="https://economy-finance.ec.europa.eu/system/files/2023-04/COM_2023_240_1_EN.pdf">a tight rein</a> when it comes to spending and debt levels.</p>
<p>In contrast the Bank of England has warned that its base rate, already higher than the EU’s, is likely to stay at 5.25% <a href="https://www.ft.com/content/6425c756-0ff7-42f3-9022-01be30da07fd">“for an extended period of time”</a>. Inflation (on its targeted consumer price index) slowed to <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23">4.6% in October</a>, well down from its peak above 11% in October 2022, but the average household is braced for more cost of living increases including <a href="https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022">a mid-winter 5% rise</a> in the energy price cap. The recent <a href="https://www.cnbc.com/2023/10/03/sterling-had-its-worst-month-for-a-year-and-it-may-fall-further.html">weakening of the pound</a> against the dollar has also added to industries’ raw material costs, and could worsen if UK interest rates fall too soon. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inflation-has-affected-the-uk-us-and-europe-differently-heres-what-this-means-for-interest-rates-218561">Inflation has affected the UK, US and Europe differently – here's what this means for interest rates</a>
</strong>
</em>
</p>
<hr>
<h2>Recession threat isn’t over</h2>
<p>The UK economy, while hardly growing this year, has defied the Bank’s earlier <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022">forecast of a recession</a> from the end of 2022. But because this encouraged the bank into another near-doubling of base rates – from 2.25% in October 2022 to 5.25% from August 2023 – a UK recession in 2024 is still <a href="https://www.fitchsolutions.com/bmi/country-risk/uk-recession-2024-sluggish-rebound-bond-rollovers-take-their-toll-27-10-2023">expected by some commentators</a>. Unfortunately, consumer spending has been <a href="https://www.imf.org/en/Publications/selected-issues-papers/Issues/2023/07/13/Enhancing-Business-Investment-in-the-United-Kingdom-536320">less affected</a> by higher borrowing costs than private and public investment, which ultimately drive economic growth. </p>
<p>More ominously for US president Joe Biden, current interest rate patterns suggest the US could also be <a href="https://www.usbank.com/investing/financial-perspectives/market-news/treasury-yields-invert-as-investors-weigh-risk-of-recession.html">heading for recession</a> in a presidential election year. Most US GDP forecasts for 2024 remain in the 1.5-2.0% range, but that’s well down from the <a href="https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimate">4.9% reached in third-quarter 2023</a>. Against this backdrop, the eurozone’s official forecast of <a href="https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/autumn-2023-economic-forecast-modest-recovery-ahead-after-challenging-year_en">1.2% growth in 2024</a> could be seen as a relatively strong performance since it’s not expected to slow as much as the US is predicted to in 2024.</p>
<p>So, borrowers already hit by higher costs can expect some relief in 2024. But that’s partly due to growing concern that, with <a href="https://blogs.worldbank.org/developmenttalk/commodity-markets-outlook-eight-charts-0">falling global commodity prices</a> already helping to subdue inflation, central bankers may have applied the brakes too hard since 2022, endangering a global recovery.</p><img src="https://counter.theconversation.com/content/219857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Market expectations for rate cuts sooner rather than later have been dashed but some economies remain in danger of recession.Alan Shipman, Senior Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2175122023-12-10T14:30:57Z2023-12-10T14:30:57ZTight budgets are making tipping a thorny issue this holiday season — here’s how to manage it<figure><img src="https://images.theconversation.com/files/564373/original/file-20231207-31-bf2zcz.jpg?ixlib=rb-1.1.0&rect=71%2C26%2C5182%2C3341&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Due to the current affordability crisis, many Canadians can’t afford to tip extra this holiday season.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/tight-budgets-are-making-tipping-a-thorny-issue-this-holiday-season-heres-how-to-manage-it" width="100%" height="400"></iframe>
<p>With the holiday season upon us, many Canadians are reassessing their spending habits in the face of the country’s <a href="https://globalnews.ca/news/10049369/rising-cost-of-living-unprecedented-pressure-food-banks-canada/">high cost of living</a>. </p>
<p>Canadians are <a href="https://www.theglobeandmail.com/business/article-canadian-holiday-spending">projected to spend 11 per cent less</a> this holiday season compared to 2022, according to Deloitte Canada. Nearly 80 per cent of Canadians expect <a href="https://globalnews.ca/news/10076040/holiday-spending-travel-poll-canada/">interest rates and inflation to impact their holiday budgets</a>.</p>
<p>In addition, some Canadians are still recovering from last year’s festivities. One-quarter of Canadians <a href="https://globalnews.ca/news/10087745/canadian-holiday-spending-debt/">still haven’t paid off their holiday spending debt from last year</a>, according to a survey commissioned by Global News.</p>
<p>As such, Canadians are being forced to be more discerning in their holiday spending. Restaurants are usually one of the <a href="https://www.pymnts.com/consumer-finance/2022/restaurants-first-to-go-when-shoppers-cut-holiday-spending">first things to be cut from spending budgets</a> — Restaurants Canada <a href="https://www.restaurantscanada.org/resources/real-foodservice-sales-drop-in-november-2022/">noted a decline in food service sales</a> throughout 2022 compared to 2019. Since restaurants <a href="https://www.marketwatch.com/story/eat-drink-and-be-merry-heres-where-shoppers-have-been-spending-the-most-money-this-holiday-season-11672072356">receive a big share of consumers’ holiday spending</a>, they are likely to be impacted by tightened budgets.</p>
<p>This, of course, extends to tipping — with the current affordability crisis and tip inflation, <a href="https://dailyhive.com/canada/holidays-tipping-extra">Canadians can’t afford to tip extra</a> this holiday season.</p>
<h2>Tip creep and inflation</h2>
<p>Many Canadians are frustrated with current tipping culture. A recent Angus Reid survey found <a href="https://angusreid.org/canada-tipping-service-hospitality-included-tipflation-tip-creep">three in five Canadians</a> are being asked to tip a higher percentage — ranging from 18 to 30 per cent — for a wider range of goods and services. </p>
<p>These two phenomena — known as tip creep and <a href="https://www.cbc.ca/radio/costofliving/tipflation-gratuities-1.6555135">tipflation</a> — have been hurting shoppers financially. In the context of the cost-of-living crisis, this is only worsening affordability issues.</p>
<p>The COVID-19 pandemic also exacerbated
tip creep and tipflation. A survey conducted by Restaurants Canada in April 2022 found that <a href="https://www.ctvnews.ca/business/here-s-what-the-average-restaurant-tip-percentage-is-across-canada-1.6040388">44 per cent of respondents tipped higher</a> when dining in-person, compared to before the pandemic. </p>
<p>While research has shown that <a href="https://doi.org/10.1177/0010880401421001">customers tip servers to reward them for good service</a>, 78 per cent of Canadians believe tipping no longer functions as a way to show appreciation for employees; instead, they feel it is expected of them, no matter the quality of service.</p>
<p>Tipping is so ubiquitous in Canada, that point-of-sale devices now default to including tip. Tipping makes sense if an employee helps a shopper, but <a href="https://www.theatlantic.com/technology/archive/2023/01/technology-pandemic-economy-gratuity-tipping-etiquette-square/672658/">a self-checkout kiosk asking the shopper to tip</a> is plainly ridiculous.</p>
<h2>Are no-tip models the future?</h2>
<p>Tip creep and tipflation have led to widespread <a href="https://theconversation.com/a-tip-too-far-why-tip-fatigue-may-be-setting-in-for-north-americans-189289">tipping fatigue</a> among Canadians, with more than half expressing a preference for a no-tip, service-included model that ensures higher base wages for employees.</p>
<p>However, not all Canadians support the service-included model. In <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4488280">my ongoing research</a>, I’ve discovered that some shoppers oppose this approach because they want to maintain control over how much they reward good service.</p>
<p>My co-researcher and I asked individuals to explain their reasons for avoiding restaurants with a no-tip policy. Almost 40 per cent of their responses related to losing control of rewarding or penalizing service quality.</p>
<p>A no-tip policy typically raises menu prices by a flat 20 per cent, which not only acts as a defacto tip, but also robs customers of the ability to personally reward excellent service and, by extension, penalize subpar service. </p>
<p>Our findings revealed that 30 per cent of the reasons given were tied to the price hike, while the remaining 30 per cent were associated with concerns about potential poor service from establishments adopting this policy. This means a no-tip model is not a likely solution. Instead, there are other ways tipping can be managed to promote Canadians’ financial well-being.</p>
<h2>Tipping during the holidays</h2>
<p>There are three ways Canadians can navigate the thorny issue of tipping this holiday season. First is reminding shoppers that tipping is discretionary. Canadians should not feel pressured into tipping unless they wish to reward workers for good service. </p>
<figure class="align-center ">
<img alt="A waiter, wearing a face mask, writes on a notepad while standing in front of two customers seated at a restaurant table" src="https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564376/original/file-20231207-17-bmeqfc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Consumers need to remember they always have free will in choosing what amount to tip workers, or whether to tip them at all.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Canadians must not feel that they need to tip employees to allow them liveable wages. Canada is not the United States, which has an abysmal <a href="https://www.dol.gov/agencies/whd/state/minimum-wage/tipped">minimum wage of US$2.87 for tipped workers</a>. In Canada, only <a href="https://www.quebec.ca/nouvelles/actualites/details/hausse-du-salaire-minimum-a-compter-du-1er-mai-2022-le-ministre-jean-boulet-annonce-une-hausse-du-taux-general-de-075-lheure-37361">Québec still maintains a tipped wage</a> — the other provinces have minimum wages ranging from $14 to $16.77 an hour. </p>
<p>These rates come much closer to the country’s <a href="https://www.livingwage.ca/rates">liveable wage</a> compared to the U.S. But, in any case, businesses should be the ones responsible for ensuring employees are paid appropriately, not the public.</p>
<p>Second, shoppers must remember they always have a choice in choosing what amount to tip workers. Business owners may choose default tip percentages on point-of-sale devices, but customers are always able to change them. Shoppers need to hold owners (not employees) responsible for their decisions. </p>
<p>Third, if an owner or their employees want to encourage tipping, they should disclose <a href="https://members.restaurantscanada.org/wp-content/uploads/2018/02/Current-Tipping-Rules-in-Canada_December-2017.pdf">how the tips are distributed</a> between owner and staff and among customer-facing and back-end staff. Such disclosures will make shoppers feel respected and allow staff to truly <a href="https://www.cbc.ca/news/business/no-tipping-model-restaurants-1.6755944">earn their tips</a>.</p><img src="https://counter.theconversation.com/content/217512/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vivek Astvansh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With the current affordability crisis and tip inflation, many Canadians can’t afford to tip extra this holiday season.Vivek Astvansh, Associate Professor of Quantitative Marketing and Analytics, McGill UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2191972023-12-05T05:39:56Z2023-12-05T05:39:56ZWill the RBA raise rates again? Unless prices surge over summer, it’s looking less likely<figure><img src="https://images.theconversation.com/files/563558/original/file-20231205-17-zf09ff.png?ixlib=rb-1.1.0&rect=1736%2C1137%2C2191%2C1275&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brisbane-queensland-australia-mar-14-2022-2135239757">Shutterstock</a></span></figcaption></figure><p>If you’re looking for clues about whether the Reserve Bank has any interest rate rises left, Governor Michele Bullock offered several in her <a href="https://www.rba.gov.au/media-releases/2023/mr-23-35.html">statement</a> after Tuesday’s board meeting, saying:</p>
<ul>
<li><p>the latest monthly figures showed inflation “continuing to moderate”</p></li>
<li><p>inflation expectations remained “consistent with the inflation target” </p></li>
<li><p>wages growth was “not expected to increase much further”.</p></li>
</ul>
<p>The statement reads not only as an account of why the board kept rates on hold this month – as expected, after <a href="https://theconversation.com/why-its-a-good-bet-the-melbourne-cup-day-rate-hike-will-be-the-last-217094">increasing them in November</a> – but also an account of why it might not need to lift rates again.</p>
<p>Much will depend on “data and the evolving assessment of risks”. The board will make that assessment at its first meeting for the year in February.</p>
<p>Here’s why that next meeting matters so much. </p>
<h2>Inflation’s headed in the right direction</h2>
<p>The monthly measure of annual inflation has been falling since it peaked in December. Last week we learned that in October it fell from 5.6% to <a href="https://theconversation.com/australias-inflation-rate-now-starts-with-a-4-allowing-the-rba-to-hold-fire-on-rates-218806">4.9%</a>, meaning it’s now closer to the Reserve Bank’s target of 2-3% than to the December peak of 8.4%.</p>
<hr>
<p><iframe id="4z29y" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/4z29y/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>A few special government measures helped push it down.</p>
<p>An increase in Commonwealth <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release">rent assistance</a> decreased recorded rents; energy bill <a href="https://www.energy.gov.au/energy-bill-relief-fund/energy-bill-relief-fund-households">rebates</a> decreased recorded electricity prices; and changes to the childcare <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">subsidy</a> decreased recorded childcare prices.</p>
<p>Those government measures won’t depress future inflation readings, suggesting that from here on inflation might bounce back.</p>
<p>But on the other hand, from here on the very large inflation outcomes recorded at the end of last year will drop out of the 12-monthly figures.</p>
<h2>The mathematics of falling inflation</h2>
<p>Simple maths suggests that if this year’s November and December readings are like the average of the other readings this year, annual inflation will fall to 3.1%.</p>
<p>The November figure will be released on January 10 and the December figure on January 31. Both will be available to the Reserve Bank board when it meets on February 5 and 6, along with the latest quarterly measure of inflation. </p>
<p>If that quarterly measure is the same as the average of the past two quarters, it will show annual inflation of 4%.</p>
<p>Such outcomes – which are likely if inflation continues along its present trajectory – would see inflation closing in on the Reserve Bank’s target band and relieve it of any need to further lift rates.</p>
<p>Of course, it mightn’t happen. But there’s a lot driving down inflation. </p>
<h2>Prices we don’t much notice are falling</h2>
<p>The prices we pay attention to are those we see in the supermarket, what we fork out on mortgage payments and household bills, and what we pay at the petrol pump. (Petrol prices have been <a href="https://informedsources.com/petrol-prices-chart/">falling for weeks now</a>.)</p>
<p>Prices we notice less are far less troubling than they were. </p>
<p>During 2022, the price of household appliances climbed <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">8.2%</a>. So far this year it has <em><a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">fallen</a></em> 2%. </p>
<p>The price of furnishings climbed 5.3% during 2022. So far this year it has fallen 1.6%. The price of clothing climbed 5.4%. So far this year it has fallen 2.6%.</p>
<hr>
<p><iframe id="HlNqm" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/HlNqm/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>All sorts of prices are coming down, partly because the supply bottlenecks driving them up last year are being reversed and partly because – thanks to 13 near consecutive interest rate rises – we are not buying at anything like the rate we used to.</p>
<p>Retail spending grew by just <a href="https://www.abs.gov.au/statistics/industry/retail-and-wholesale-trade/retail-trade-australia/latest-release">1.2%</a> over the year to October – the least since the COVID lockdowns. </p>
<p>Likely population growth of 2.4% and what Westpac believes to be retail price growth of <a href="https://www.westpaciq.com.au/economics/2023/11/aus-retail-sales-dip">3.6%</a> means the amount bought per person actually fell <a href="https://www.westpaciq.com.au/economics/2023/11/aus-retail-sales-dip">4.5%</a>. </p>
<p>Even this year’s more hyped <a href="https://theconversation.com/really-need-those-new-shoes-why-you-might-spend-up-big-at-the-black-friday-sales-218241">Black Friday</a> spending was up only <a href="https://cdn.theconversation.com/static_files/files/2960/Westpac-card-tracker-20231201.indd.pdf">0.6%</a> to <a href="https://cdn.theconversation.com/static_files/files/2961/ANZ_observed_Australian_Spending_Black_Friday_spending_splash.pdf">1%</a> compared to Black Friday in November last year. Given our population growth was higher than that, it suggests we spent less on those sales per person this year.</p>
<h2>Dentistry and haircuts are more expensive</h2>
<p>What about the prices that are climbing strongly?</p>
<p>With the exception of rents – up 7.6% over the year – it’s hard to find many.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=965&fit=crop&dpr=1 600w, https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=965&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=965&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/563542/original/file-20231205-30-epc2lu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Dentistry is becoming more expensive.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>In a speech after the last Reserve Bank board meeting, Governor Bullock said inflation was increasingly being driven by the price of <a href="https://www.rba.gov.au/speeches/2023/sp-gov-2023-11-22.html">services</a>, which stands to reason given inflation in the price of goods has been ebbing away.</p>
<p>She nominated increases in the prices charged by hairdressers and dentists, as well as restaurants. And there’s definitely something to see there, for <a href="https://www.rba.gov.au/speeches/2023/sp-gov-2023-11-22.html">dentists</a>.</p>
<p>During 2022, the statistician’s measure of the price of dentistry climbed 3.9%. </p>
<p>In the first three quarters of this year, it climbed by that much again, meaning the pace picked up. But the increase is not that much more than the overall increase in wages, suggesting dentistry is not being priced much further out of reach.</p>
<p>Haircuts climbed in price a hefty 6% during 2022 and continued to climb at that pace during the first three quarters of 2023, which is uncomfortable, but at least not accelerating. </p>
<p>The price of restaurant meals climbed 6.7% during 2022 but only 3.8% in the first three quarters of 2023, meaning the pace is easing.</p>
<h2>Wage growth a risk, but not yet a worry</h2>
<p>The governor is concerned high wage growth will become embedded in the price of services. But at 3.9%, wage growth isn’t particularly high.</p>
<p>About a third of workers are covered by enterprise agreements. Jeff Borland of the University of Melbourne points out the increases in most of the newly-lodged enterprise agreements are flat or trending down. Many of us got a top-up at the start of our three-year agreements, which won’t be continued.</p>
<p>Borland’s <a href="https://cdn.theconversation.com/static_files/files/2962/lmsnov23.pdf">statistical analysis</a> suggests individual agreements aren’t pushing up wage growth either, but increases granted by the Fair Work Commission to the 20% of workers on awards are. Yet, by design, these increases reflect, rather than drive, inflation.</p>
<p>If inflation does accelerate over the holiday season, the Reserve Bank probably will push up rates further. But as the governor seemed to acknowledge on Tuesday, it’s not looking likely.</p>
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<strong>
Read more:
<a href="https://theconversation.com/inflation-now-starts-with-a-4-allowing-the-rba-to-hold-fire-on-rates-218806">Inflation now starts with a 4, allowing the RBA to hold fire on rates</a>
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<img src="https://counter.theconversation.com/content/219197/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation. </span></em></p>Per person, we’re spending less this year – even on this year’s much hyped Black Friday sales. If that continues over summer and inflation stays low, a rate hike in February 2024 looks unlikely.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2185612023-11-29T14:07:35Z2023-11-29T14:07:35ZInflation has affected the UK, US and Europe differently – here’s what this means for interest rates<p>The Bank of England’s governor has <a href="https://www.bbc.co.uk/news/articles/cjrpzxpv90eo">repeatedly warned</a> that it will not cut UK interest rates <a href="https://www.cnbc.com/2023/11/02/bank-of-england-leaves-interest-rates-unchanged.html">any time soon</a>, even with a recent sharp fall in consumer price inflation. </p>
<p>Like central banks in the US and eurozone, the bank has been sharply increasing its base rate to try to tame a spike in inflation. But this has increased the interest people must pay on loans like mortgages, as well as businesses’ financing costs, leading to <a href="https://www.reuters.com/markets/rates-bonds/uk-economy-shows-signs-slowdown-boe-rate-hikes-mount-2023-08-23/">an economic slowdown</a>.</p>
<p>Inflation has roared back around the world over the past two years after many years of “low-flation”. A period of slow consumer price growth since the mid-2010s had left central banks struggling for ways to stimulate economic activity. But how they have tackled inflation since have diverged in line with the specific issues and items driving price growth in each economy. Understanding these differences could shed light on the likely direction of interest rates in the coming months.</p>
<p>When COVID hit and lockdown measures stopped the economy altogether, price pressures fell even more than they had during the low-flation period. Some inflation gauges even turned negative. The world’s major central banks used more monetary stimulus to keep their economies afloat. The eurozone implemented the pandemic emergency purchase programme (<a href="https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html">PEPP</a>), while <a href="https://www.bankofengland.co.uk/coronavirus">the UK</a> and <a href="https://www.stlouisfed.org/open-vault/2020/august/fed-response-covid19-pandemic">the US</a> came up with similar measures. </p>
<p>The COVID recession also had a particularly pronounced effect on energy prices – US <a href="https://www.bbc.co.uk/news/business-52350082">oil prices even went negative</a> for a few days in March 2020.</p>
<p>But this shock was temporary. As lockdowns eased throughout the western world in the second half of 2020 and into 2021, the economy jumped back quickly. This happened faster and to a greater extent than anyone had anticipated thanks to the stimulus programmes countries enacted. </p>
<h2>Diverging fortunes</h2>
<p>Of course, since every country didn’t experience this snapback at the same time, global supply chains could not keep up. Production in some countries was still in lockdown, while in others factories were ramping up production as people in recovering countries were starting to buy again. Orders became backlogged and shipments were queued. </p>
<p><a href="https://theconversation.com/global-economy-2023-covid-19-turned-global-supply-chains-upside-down-3-ways-the-pandemic-forced-companies-to-rethink-and-transform-how-they-source-their-products-196764">These bottlenecks</a> led to shortages and price hikes for many goods – from <a href="https://www.cnbc.com/2021/08/25/auto-industry-supply-chains-hit-hardest-during-covid-pandemic-survey.html">cars</a> to <a href="https://www.reuters.com/technology/apples-iphone-shipments-seen-sagging-under-china-disruptions-2022-11-30/">phones</a> to over-the-counter <a href="https://www.fastcompany.com/90828462/from-baby-formula-to-tylenol-2022-was-the-year-in-shortages-but-whats-in-store-for-2023">pain meds and baby formula</a>.</p>
<p>Energy prices also shot up again. Crude oil prices reached pre-pandemic levels by <a href="https://www.investopedia.com/articles/investing/100615/will-oil-prices-go-2017.asp#:%7E:text=9-,WTI%20closed%20out%202020,-at%20around%20%2448">the end of 2020</a> and surpassed them throughout 2021. So even before the Russian invasion of Ukraine in February 2022, energy prices and the reopening of the economy were pushing inflation up.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/russia-ukraine-war-has-nearly-doubled-household-energy-costs-worldwide-new-study-200104">Russia–Ukraine war has nearly doubled household energy costs worldwide – new study</a>
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<p>The outbreak of the war in Ukraine gave energy prices another jolt, of course – especially natural gas in Europe. This led <a href="https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising#:%7E:text=For%20example%2C%20if%20there%20is,'cost%2Dpush'%20inflation.">central banks to argue</a> they were fighting global cost-push inflation. This means external factors were pushing up the prices of key goods, leaving central banks with little control. </p>
<p>But a closer look at the figures shows that the inflation stories in the three major economies of the US, UK and eurozone had already started to diverge at this point. Since then, they have become even more different. </p>
<p>In all three, inflation peaked at close to 10% in the second half of 2022, but the drivers differed. The following charts show the major contributors to overall consumer price inflation in each of these regions were energy, food and then services and other goods.</p>
<p>In the eurozone, inflation was mostly due to higher energy and, later, food prices:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line graph showing headline inflation, and that for energy, food and all other items in the Eurozone rising to a peak in October 2022 before falling again." src="https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562394/original/file-20231129-17-9eqdfq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://data.oecd.org/price/inflation-cpi.htm">Author provided using OECD data.</a></span>
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</figure>
<p>But in the UK the prices of non-energy, non-food items were more important to the inflationary push: </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing headline rate of UK inflation and that for energy, food and all other items, rising until October 2022 before falling again." src="https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562397/original/file-20231129-30-8d3izq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://data.oecd.org/price/inflation-cpi.htm">Author provided using OECD data.</a></span>
</figcaption>
</figure>
<p>As they were in the US:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing headline rate of US inflation and that for energy, food and all other items, rising until October 2022 before falling again." src="https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/562398/original/file-20231129-29-x68ffx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://data.oecd.org/price/inflation-cpi.htm">Author provided using OECD data.</a></span>
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</figure>
<h2>The current inflation picture</h2>
<p>Now the height of the pandemic is behind these economies, supply chain pressures have eased, and energy prices are back to pre-war levels – hence the fall in inflation that’s <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23">now being reported</a> relative to last year. </p>
<p>But the latest headline inflation figures (October 2023) show that another item is now causing these three economies to diverge: housing. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Three bar charts showing the differing composition of inflation between the US, Eurozone and UK in the October 2023 inflation data." src="https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561929/original/file-20231127-21-z3j90n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The items that fuelled price inflation in the US, UK and Eurozone headline inflation rates in October 2023.</span>
<span class="attribution"><span class="source">US Bureau of Labor Statistics, Eurostat and UK Office for National Statistics</span></span>
</figcaption>
</figure>
<p>The US and the eurozone have similar headline inflation rates. But in the US, inflation is mainly driven by housing costs (which may be partly due to the way housing costs are measured in the US). In the eurozone, however, energy prices are now dragging down the rate of inflation – although that is offset to a large extent by food prices, which have continued to rise. </p>
<p>On the other hand, the UK has a higher inflation rate and the “all other items” category is now the biggest driver of price rises. So, in the UK, price increases across the board mean that inflationary pressures have spread from a few sectors, like energy or housing, to the broader economy. This makes inflation more sticky and requires more policy tightening to cool down the economy.</p>
<figure class="align-center ">
<img alt="Person holding empty wallet open, over credit cards and bills." src="https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561946/original/file-20231127-17-m41f87.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Monetary policy tightening can include rate rises, which increase rates on loans and mortgages.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/credit-card-debt-holding-empty-wallet-421745821">Yingzaa_ST/Shutterstock</a></span>
</figcaption>
</figure>
<h2>More interest rate rises to come?</h2>
<p>All of this shows that, in the US and the eurozone there is little sign of broad-based inflation pressures at the moment. If energy prices remain constant and food prices stabilise, inflation might soon return to close to the 2% target most central banks aim for, even without further action by the US Federal Reserve and the European Central Bank. </p>
<p>The UK, by contrast, seems to have a more standard inflation problem with price pressures across a wider set of items that still need to be contained. This leaves the Bank of England with a harder job to do to bring inflation under control. </p>
<p>And so, we can expect inflation to keep slowing in the eurozone and the US without much intervention. In the UK, however, further action might be needed if the Bank of England is to keep price rises under control.</p><img src="https://counter.theconversation.com/content/218561/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK, eurozone and US inflation stories have diverged, which means each economy is now fighting a distinct battle with prices rises, which could require very different weapons.Pietro Galeone, Research fellow, Bocconi UniversityDaniel Gros, Professor of Practice and Director of the Institute for European Policymaking, Bocconi UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2188062023-11-29T06:27:43Z2023-11-29T06:27:43ZInflation now starts with a 4, allowing the RBA to hold fire on rates<figure><img src="https://images.theconversation.com/files/562372/original/file-20231129-21-3rb6av.png?ixlib=rb-1.1.0&rect=1928%2C700%2C2047%2C1311&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brisbane-queensland-australia-mar-14-2022-2135239757">Shutterstock</a></span></figcaption></figure><p>Australia’s inflation rate has dived from 5.6% to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/oct-2023">4.9%</a> in October, pushing it below 5% for the first time in 20 months.</p>
<p>The Australian Bureau of Statistics figures relate to the newer monthly measure of annual inflation, rather than the traditional quarterly measure, which came in at <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">5.4%</a> in the September quarter, down from 6% in the June quarter.</p>
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<p>Pushing down the annual inflation rate was a <em>fall</em> in average prices in October. </p>
<p>In October average prices fell 0.3%, driven down by a 2.9% fall in the price of petrol, a 7% fall in the price of price of holiday travel and accommodation, and a 2.5% fall in the price of household gas.</p>
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Read more:
<a href="https://theconversation.com/why-further-rba-rate-hikes-are-less-likely-now-than-even-1-week-ago-218225">Why further RBA rate hikes are less likely now than even 1 week ago</a>
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<p>Even the average cost of rent fell 0.4% in the month, driven down by an increase in Commonwealth Rent Assistance. </p>
<p>The bureau says without the increase in rent assistance, measured rents would have climbed 0.7% making annual growth 8.6% instead of 7.6%.</p>
<p>The easing of inflation wasn’t limited to just a few sectors. So-called core inflation, which excludes volatile items like fruit, fuel and holiday travel, also experienced a decline, falling from 5.5% to 5.1%.</p>
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<h2>It means the RBA can relax just a bit</h2>
<p>Economists who had anticipated a higher rate are now reconsidering their expectations for next week’s Reserve Bank board meeting, believing a further increase in interest rates at that meeting is now much less likely.</p>
<p>However, it is important not to get carried away with one month’s news. </p>
<p>We have previously seen inflation dip in a single month only to bounce back later.</p>
<p>Still, it is welcome news in the lead-up to the festive season.</p>
<p>It comes on top of news of very soft retail sales in October, up just <a href="https://www.abs.gov.au/statistics/industry/retail-and-wholesale-trade/retail-trade-australia/oct-2023">1.2%</a> over a year in which we now know prices grew 4.9% and the population grow by about 2.4%, implying a fall in purchases per person of around 6%</p>
<h2>Falling inflation in the US is about to help</h2>
<p>While a lot of the fall in Australian inflation in October was due to lower oil prices, a lot from here on will be driven by a much higher Australian dollar, which climbed from 63.4 US cents to 66.5 US cents throughout November – an increase approaching 5%.</p>
<p>The higher dollar means that even if the price of oil and other overseas prices don’t fall further in November, they should fall further in Australian dollars. </p>
<p>The Australian dollar has climbed because the US dollar has fallen amid expectations that no further US interest rate hikes will be needed in the light of much lower inflation throughout the Western world.</p>
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<p>Having said that, inflation in the cost of Australian services, from <a href="https://www.rba.gov.au/speeches/2023/sp-gov-2023-11-22.html">haircuts to dentistry</a>, continues to concern Reserve Bank Governor Michele Bullock.</p>
<p>We will know more when the Australian Bureau of Statistics releases the major quarterly inflation report at the end of January ahead of the first Reserve Bank board meeting for the year on Monday and Tuesday February 5 and 6.</p>
<p>The Reserve Bank’s goal of bringing inflation back to its target band of 2-3% by <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2023/2023-11-07.html">late 2025</a> remains challenging, especially with ongoing price pressures in the labor-intensive services sector.</p>
<p>Still, if Australia can mimic the success of the US and other Western countries in continuing to bring inflation down, interest rates should peak soon, and perhaps even fall sometime in 2024.</p><img src="https://counter.theconversation.com/content/218806/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isaac Gross does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Average prices fell in October, driven down by dives in the price of petrol and overseas travel, and an increase in Commonwealth Rent assistance.Isaac Gross, Lecturer in Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2170462023-11-28T23:49:49Z2023-11-28T23:49:49ZPolicing is not the answer to shoplifting, feeding people is<figure><img src="https://images.theconversation.com/files/561622/original/file-20231124-19-hilwzf.jpg?ixlib=rb-1.1.0&rect=150%2C66%2C3875%2C2752&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The social and financial costs of policing food theft are higher than the costs of addressing poverty and income inequality.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/policing-is-not-the-answer-to-shoplifting-feeding-people-is" width="100%" height="400"></iframe>
<p>Big businesses like to tell us that, as consumers, <a href="https://www.saltwire.com/atlantic-canada/business/sylvain-charlebois-we-all-pay-for-grocery-theft-100812369/">we all pay for food theft</a>. We’ve been sold a narrative that as consumers who don’t steal, we pay for the theft of food by others on our grocery receipts. </p>
<p>Reported increases in food theft in Canada are <a href="https://nationalpost.com/news/canada/grocery-shoplifting-on-the-rise-in-canada-amid-inflation-industry-insiders-say">linked to pressures from rising inflation</a> along with <a href="https://www.cbc.ca/news/canada/manitoba/staffing-cuts-recreation-libraries-winnipeg-budget-1.6742002#:%7E:text=%22We%20see%20cuts%20in%20community,staff%2C%20while%20libraries%20lost%2011.">diminished investment in social supports</a> such as housing, mental health, transit and crisis and community supports. </p>
<p><a href="https://yellowheadinstitute.org/wp-content/uploads/2020/06/police-budgets-praire-cities.pdf">Research has shown that in Prairie cities municipalities disproportionately fund police</a> over essential services like housing and mental health support. But instead of increasing social supports, the response to food theft has been surveillance, security and policing in our grocery stores.</p>
<p>Retailers would have us believe that the cost of food theft is limited to retailers passing on their losses to consumers. However, retailer investment in surveillance, security and special duty police officers are costs that are also passed on to consumers: we pay for the surveillance systems that surround us.</p>
<p>The social cost of policing food is much higher, and deeply concerning because it produces unequal community impacts. </p>
<h2>Food theft</h2>
<p>Food theft is framed as a threat to paying customers. That furthers the divide between those who can still afford groceries, and those who cannot. Media coverage of food theft often focuses on exceptional examples of theft to emphasize that the crisis is an issue of worsening crime. But that framing ignores the broader economic conditions that perpetuate the problem. </p>
<p>In response to media coverage of grocery theft, some have tried to highlight the connection between rising theft and unaffordable food prices. <a href="https://globalnews.ca/news/9425322/toronto-legal-firm-pro-bono-defence-shoplifting/">A Toronto-area law firm has even offered pro bono support for those charged for stealing groceries</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A man in a supermarket surreptitiously placing a product in a backpack." src="https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561623/original/file-20231125-20-qxiiqy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Reported increases in food theft in Canada have been linked to pressures from rising inflation and diminished investment in social supports.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>When food theft is disconnected from social conditions, it also collectively distracts us from the underlying issue of rising food costs.</p>
<p>Following calls from the Canadian government to stabilize prices as food inflation outpaces general inflation, <a href="https://www.theglobeandmail.com/business/article-major-canadian-grocers-yet-to-confirm-discounts-price-freezes-federal/">grocers have submitted preliminary plans to lower food prices but have yet to implement them</a>. </p>
<h2>Policing food theft</h2>
<p>Buying into the food theft moral panic, divorced from its broader social conditions, has resulted in increased surveillance, security and policing. Retailers and police rely on these <a href="https://globalnews.ca/news/8604171/canada-grocery-store-shoplifting-rise/">extraordinary accounts of food theft</a> to create moral panic to be managed through securitization and policing. </p>
<p>We are emerging from a global pandemic that severely impacted unemployment rates, as cities grapple with underfunded social services and inflated police budgets. In these contexts, thinking about food theft through a lens of criminality limits interventions and responses.</p>
<p>In 2020, the Manitoba government established a <a href="https://news.gov.mb.ca/news/index.html?item=49281">Retail Crime Task Force with the goal of “reducing the number of thefts.”</a> The press release announcing the partnership was held in front of a Winnipeg grocer — sending a strong message that food theft will not be tolerated. </p>
<p><a href="https://www.cbc.ca/news/canada/manitoba/retail-crime-task-force-manitoba-government-1.5733988">Project Stop Lifting</a> is another initiative between the Winnipeg Police Service and Manitoba Justice, and in a two-month period in 2020 it led to 74 arrests and 592 total charges were laid. </p>
<p>Similarly, <a href="https://vancouversun.com/news/crime/vancouver-police-arrest-258-people-in-shoplifting-crackdown">Vancouver Police have been cracking down on theft</a> and between Sept. 11-26, 258 shoplifting arrests were made. </p>
<p>These arrests and charges raise important concerns about how increased policing is being used as a purported solution to food theft.</p>
<h2>Impacts on racialized people</h2>
<p>Increased policing will disproportionately impact racialized and other marginalized people who are most vulnerable to over-policing and criminalization.</p>
<p>A charge for theft under $5,000 may not result in incarceration for some, but we know Indigenous and other racialized people are more likely to be arrested for minor offences. In Manitoba, Indigenous people are subject to overpolicing, racial profiling and over incarceration. <a href="https://www.justice.gc.ca/eng/rp-pr/jr/gladue/p2.html">Indigenous people represent 77 per cent of the provincially incarcerated population</a>. </p>
<p>Research shows that <a href="https://www.versobooks.com/en-ca/products/178-the-end-of-policing">increased policing</a> of grocery stores and pilot programs to increase arrests will <a href="http://www.ajic.mb.ca/volumel/toc.html">disproportionately impact</a> Indigenous and racialized shoppers. This is disconcerting given the <a href="https://ehprnh2mwo3.exactdn.com/wp-content/uploads/2021/01/Calls_to_Action_English2.pdf">Truth and Reconciliation Commission’s Call to Action No. 30</a> which calls upon federal, provincial, and territorial governments to eliminate the overrepresentation of Indigenous people in custody. The cost of food theft does not justify the impacts of increased incarceration for Indigenous Peoples, as well as other racialized and marginalized people.</p>
<p>Manitoba Premier Wab Kinew has argued the province’s approach to cracking down on theft <a href="https://winnipegsun.com/news/crime/province-announces-new-retail-crime-task-force">fails to address the root causes of crime</a>, and that the underlying problems that lead to theft need to be addressed. Theft cannot be divorced from the social conditions that leave individuals with no other alternatives, especially for needs as basic as food. </p>
<h2>The cost of policing food</h2>
<p>The cost consumers pay for food theft when grocers offload costs to their customers may be significant. However, the cost of policing and incarceration is far more substantial. <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3510001301">In 2021-2022 the average cost to incarcerate someone in Canada was $119,355</a>. Beyond the cost of incarceration, <a href="https://www.justice.gc.ca/eng/rp-pr/jr/ccc2014/system-systeme.html">we have to consider the cost of responding to food theft within the criminal justice system</a> that results in police costs, court costs, prosecution costs, legal aid costs, correctional services costs, probation costs as well as the cost of incarceration.</p>
<p>The social cost of such measures is important to consider. Going through the justice system will compound financial distress, subject individuals to police violence, and if incarcerated, will disrupt lives.</p>
<p>The costs associated with policing food, and incarcerating those who find themselves in a position of needing to steal food, should be redirected to feed people. Calls <a href="https://canadiandimension.com/articles/view/yes-city-councils-can-cut-the-police-budget">to defund</a> and <a href="https://www.versobooks.com/en-ca/products/2571-a-world-without-police">abolish the police</a> have argued for the reallocation of police budgets towards life-sustaining social services and non-carceral alternatives to address crime. </p>
<p>The redistribution of public spending would address people’s struggles to afford food and reduce the high social and fiscal cost of criminalization and policing. By contrast, directing funding to surveillance, security and policing in response to food theft <a href="https://theconversation.com/defunding-the-police-is-a-move-towards-community-safety-181376">will compound harms</a>. </p>
<p>We have a serious problem if we would rather see people in prison than fed.</p><img src="https://counter.theconversation.com/content/217046/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Merissa Daborn receives funding from Social Sciences and Humanities Research Council of Canada. </span></em></p>The food theft crisis is framed as a threat to paying customers. This furthers the divide between those who can still afford groceries and those who cannot.Merissa Daborn, Assistant Professor in Indigenous Studies, University of ManitobaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1942862023-11-22T17:59:52Z2023-11-22T17:59:52ZAutumn statement: experts react to national insurance and business tax cuts<figure><img src="https://images.theconversation.com/files/561134/original/file-20231122-25-dom9pi.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4950%2C3295&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">UK chancellor, Jeremy Hunt, with his 2023 Autumn Statement. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/hmtreasury/53348723234/">Simon Walker/No 10 Downing Street/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p><em>The UK chancellor, Jeremy Hunt, as announced a raft of changes to the tax and benefit system as part of the government’s <a href="https://assets.publishing.service.gov.uk/media/655e107697196d000d985d6b/E02982473_Autumn_Statement_Nov_23_Accessible_v3.pdf">autumn statement</a>. They included:</em></p>
<ul>
<li><em>main employee rate of national insurance cut from 12% to 10% from January 6 2024, saving someone on the average salary £450</em></li>
<li><em>class 2 national insurance to be abolished, saving the average self-employed person £192 a year</em></li>
<li><em>national living wage to increase from £10.42 to £11.44 and extended to all over-21s from April 2024</em></li>
<li><em>universal credit to rise with October inflation of 6.7%, an average increase of £470, accompanied by more requirements for claimants to look for work</em></li>
<li><em>pension triple lock maintained with an increase of 8.5% from April 2024</em></li>
<li><em>an effective business investment tax cut of 25p for every £1 invested</em></li>
<li><em>alcohol duty frozen until August 1 2024.</em></li>
</ul>
<p><em>Here’s a selection of expert reactions taken from <a href="https://theconversation.com/autumn-statement-as-it-happened-218211?notice=Article+has+been+updated.">our live blog</a> of the autumn statement on November 22.</em></p>
<h2>Personal taxes could give an electoral boost, but what next?</h2>
<p><strong>Gavin Midgley, Senior Teaching Fellow in Accounting, University of Surrey</strong></p>
<p>This is a significant giveaway but possibly also a canny one politically, given that this rate only affects earnings up to £50,000 per annum – anything beyond that will still incur the existing rate. This could mean an avoidance of the “tax cuts for the rich” accusations that were levelled at the previous chancellor in the September 2022 mini-budget.</p>
<p>The Office for Budget Responsibility (OBR) has declared that the NIC cut accounts for virtually all of the fiscal windfall. And with downgraded growth forecasts for the coming two years, it’s difficult to see what the chancellor can do in the next full budget (very likely to be the last budget before the next general election).</p>
<h2>Business taxes: expected but questions remain</h2>
<p><strong>Hilary Ingham, Senior Lecturer in the Department of Economics at Lancaster University</strong></p>
<p>Out of over 100 measures outlined in today’s autumn statement, a significant number were directed at business. Making full expensing permanent – the largest business tax cut in modern history, according to Hunt – certainly carries a significant cost, some £11 billion per year. </p>
<p>While it won’t help all companies, this measure is one of the headlines from the autumn statement because the chancellor can now claim that, not only does the UK have the lowest headline corporation tax rate in the UK, it also has the most generous capital allowances.</p>
<p>The chancellor also extended the 75% discount on business rates, up to £110,000, for retail, hospitality and leisure business for another year. Whether this will be sufficient to save many hospitality businesses remains to be seen.</p>
<h2>Despite government headroom, the economy is faltering</h2>
<p><strong>Alan Shipman, Senior Lecturer in Economics, The Open University</strong></p>
<p>Inflation has halved since October 2022 and there has been talk of “fiscal headroom” because the government borrowed less than it expected in 2023. But the gap between its spending and tax receipts has continued to widen. Public borrowing was 23% higher than last year in the first half of 2023, and October’s deficit was the second highest on record. </p>
<p>A sustained investment recovery since 2022 is now faltering, with year-on-year growth in business investment slowing to 2.8% in the third quarter, from 9.2% the quarter before. Without more investment, it’s hard to deliver any growth in average output per hour worked. This key measure of labour productivity stopped growing in 2016 and fell sharply in 2020-21 during the pandemic shutdowns.</p>
<h2>Pension pot for life</h2>
<p><strong>Louise Overton, Associate Professor in Social Policy at the University of Birmingham</strong> </p>
<p>The state pension will surpass £10,000 <a href="https://www.pensionbee.com/press/state-pension-increase-april-2023#:%7E:text=Taking%20effect%20for%20payments%20starting,year%20%2D%20%C2%A3156.20%20a%20week.">for the first time</a> this year thanks to the continuation of triple lock. This is a significant step forward for older people living on a low income and a lifeline for the <a href="https://www.birmingham.ac.uk/research/chasm/financial-inclusion/2022/index.aspx">15% of pensioners</a> living in poverty in the UK.</p>
<p>But it’s hard to see how tax cuts and the continuation of the triple lock (at least in its current form) can be squared with a situation where significant sections of the working population remain worse off. Intragenerational inequality among older cohorts is real, but these measures can only serve to worsen the intergenerational savings gap. Any hope of closing this gap via private pension savings is unlikely to be realised by Jeremy Hunt’s plans to consult on “<a href="https://www.thisismoney.co.uk/money/pensions/article-12774637/Pension-pots-life-revealed-auto-enrolment-2-0.html">pot for life</a>” pension reforms. </p>
<p>If one of the unintended consequences is that pension funds would probably compete for top earners with more retirement savings, this move would represent another step towards the financial exclusion of small pension pot holders (typically women). They already face barriers to accessing financial advice and making the most of their defined contribution savings – an all too familiar story for the women in <a href="https://www.birmingham.ac.uk/documents/college-social-sciences/social-policy/chasm/2022/pension-decision-making-in-the-new-retirement-landscape.pdf">Chasm’s recent study</a> on pension decision making.</p>
<figure class="align-center ">
<img alt="Jar filled with coins, labelled pension." src="https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561135/original/file-20231122-29-7o9akw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Not the kind of pension pot the chancellor has in mind.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/coins-glass-money-jar-pension-label-264841286">szefei/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Business funding may not be transformative</h2>
<p><strong>Phil Tomlinson, Professor of Industrial Strategy, University of Bath</strong></p>
<p>UK investment has <a href="https://www.ft.com/content/8c6461c6-e976-4563-b277-bf61ae0a2c07">only grown by 4.6% since the Brexit referendum</a>, compared to 32% in the US and 15% in the Eurozone. Low investment is a key contributor to weak productivity growth and has been a drag on the UK economy for years. The autumn statement sought to address this record. Similarly, last week, the government announced <a href="https://www.theengineer.co.uk/content/news/government-announces-45bn-funding-for-uk-manufacturers">£4.5 billion over five years</a> in funding for UK manufacturing to accelerate the shift to net-zero, along with an expansion of digital support for small and medium size businesses through the <a href="https://www.madesmarter.uk/adoption/">Made Smarter Adoption programme</a>. </p>
<p>Whether this funding will be sufficiently transformative to propel the UK to the head of the global clean-tech race is debatable. It is “small beer” compared to <a href="https://theconversation.com/the-uk-needs-a-new-industrial-strategy-or-it-will-lose-the-global-green-subsidy-race-205483">recent interventions in the US and EU</a>, while Labour has proposed to invest £28 billion in green technologies in the next parliament. </p>
<p>The eye-catcher for business in today’s statement was the announcement that “<a href="https://www.pwc.co.uk/services/tax/insights/full-expensing-new-valuable-capital-allowance.html">full capital expensing</a>” will be made permanent. This is a tax break that allows companies to deduct investment expenditure on profits and reduce their corporation tax bill. This should give a boost to UK corporate investment – the Office for Budget Responsibility thinks by as much as £3 billion each year. However, it is unlikely to be of much value to smaller firms and start-ups, which don’t tend to invest significantly in new capital equipment (due to lack of funds) and/or record large profits - especially in their early years.</p>
<p>The Chancellor hopes his new fiscal incentives will boost investment by around 1% of GDP. However, this may be wishful thinking when the “<a href="https://www.economicshelp.org/animal-spirits/">animal spirits</a>” of business are dampened due to high interest rates and the generally bleak economic outlook. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-uk-needs-a-new-industrial-strategy-or-it-will-lose-the-global-green-subsidy-race-205483">The UK needs a new industrial strategy or it will lose the global green subsidy race</a>
</strong>
</em>
</p>
<hr>
<h2>Little investment in public services</h2>
<p><strong>Shampa Roy-Mukherjee, Vice Dean and Associate Professor, Royal Docks School of Business & Law, University of East London</strong></p>
<p>UK government debt currently stands at £2.6 trillion which is approximately 98% of GDP and the sixth highest amongst European countries. In the last financial year, the government spent £111 billion on debt interest - more than it spent on education, according to the BBC. But the government has still been able to announce tax cuts conducive to economic growth in the Autumn statement.</p>
<p>This is because of additional tax receipts arising from an inflationary environment, as well as the additional forecasted revenue from freezing tax thresholds till 2028. Despite improved fiscal headroom, there is little evidence [from the statement] that there will be any substantive expenditure in public services, apart from the NHS. In fact, the forecast is for a 16% reduction in spending in real terms in other departments until 2028. </p>
<p>With the inflation battle now under control, had the burden of interest payments been at much lower levels, it might have freed up more desperately needed resources to invest in growth-oriented plans and improve public services.</p><img src="https://counter.theconversation.com/content/194286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louise Overton has received funding from the abdrn Financial Fairness Trust for research into defined contribution decision-making and CHASM has received funding from Barrow Cadbury Trust and Friends Provident Foundation for their financial inclusion monitor.</span></em></p><p class="fine-print"><em><span>Phil Tomlinson receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for Made Smarter Innovation: Centre for People-Led Digitalisation.</span></em></p><p class="fine-print"><em><span>Alan Shipman, Gavin Midgley, Hilary Ingham, and Shampa Roy-Mukherjee do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>National insurance cuts and business investment were all included, as was the pensions triple lock. But our experts saw some omissions.Alan Shipman, Senior Lecturer in Economics, The Open UniversityGavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyHilary Ingham, Senior Lecturer, Department of Economics, Lancaster UniversityLouise Overton, Associate Professor in Social Policy Director of the Centre on Household Assets and Savings Management (CHASM), University of BirminghamPhil Tomlinson, Professor of Industrial Strategy, Co-Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathShampa Roy-Mukherjee, Associate Professor in Economics, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2182252023-11-21T10:08:58Z2023-11-21T10:08:58ZWhy further RBA rate hikes are less likely now than even 1 week ago<figure><img src="https://images.theconversation.com/files/560651/original/file-20231121-19-d1cauc.png?ixlib=rb-1.1.0&rect=878%2C761%2C2660%2C1388&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Since Australia’s Reserve Bank hiked interest rates two weeks ago, there have been two important developments – one in the United States and the other in the United Kingdom.</p>
<p>If it’s not clear to you why events overseas influence Australia’s interest rates, which are meant to be set to control Australian inflation, read on.</p>
<h2>US and UK inflation close to zero</h2>
<p>We haven’t been complete masters of our own destiny since the Australian dollar was floated <a href="https://www.smh.com.au/business/inside-the-floating-of-the-a-20131211-2z6ic.html">40 years ago next month</a>.</p>
<p>What happened in the US last Tuesday was news of dramatically lower US inflation. When increases and decreases in prices were taken together, overall US prices moved not at all in the month of October. That’s right, inflation was <a href="https://www.bls.gov/news.release/cpi.nr0.htm">zero</a>.</p>
<p>While zero movement in one month doesn’t mean zero over the entire year, it helps bring down the rate over the entire year. US inflation fell from 3.7% in the year to September to <a href="https://www.bls.gov/news.release/cpi.nr0.htm">3.2%</a> in the month to October.</p>
<p>Then the next day we got similar news from the UK. </p>
<p>Taken together, prices in the United Kingdom scarcely grew at all in October, climbing just <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">0.1%</a>. The screeching halt to UK monthly inflation took the annual rate down from 6.7% for the year to September to <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">4.6%</a> for the year to October.</p>
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<p>In both the <a href="https://www.smh.com.au/business/the-economy/mission-accomplished-fed-s-inflation-success-raises-hopes-for-rba-20231115-p5ek2k.html">US</a> and the <a href="https://www.reuters.com/markets/rates-bonds/bank-englands-pill-says-central-bank-may-be-able-reconsider-rates-stance-next-2023-11-06/">UK</a>, there’s talk there will be no need for further interest rate hikes, and very probably a case for interest rate cuts as soon as next year.</p>
<p>We don’t yet know what happened to Australia’s inflation rate in October – the Bureau of Statistics will tell us next week.</p>
<p>But we have an early indication.</p>
<p>The Melbourne Institute inflation gauge, which roughly tracks the bureau’s measure, <a href="https://tradingeconomics.com/australia/mi-inflation-gauge-mom">fell 0.1%</a> in October. If that is what the bureau finds – that overall prices barely moved (or fell) in October – Australia’s annual inflation rate should fall from 5.6% for the year to September to around 5.2% for the year to October. </p>
<h2>Inflation down all over</h2>
<p>All over the world, inflation is falling for much the same set of reasons: the price of oil is heading back down after Saudi Arabia and Russia tried to <a href="https://www.bbc.com/news/business-65804768">restrict supply</a> in the middle of the year, and the price pressures caused by shortages are easing.</p>
<p>As Australia’s Reserve Bank conceded in the <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2023/2023-11-07.html">minutes</a> of the November board meeting, in which it pushed up rates, there has been “an easing in supply chain pressures and raw materials prices”.</p>
<p>Not that this means the bank is relaxed about what’s happening to inflation; far from it.</p>
<p>In the minutes released on Tuesday and in <a href="https://rba.livecrowdevents.tv/MicheleBullockGovernorattheASICAnnualForum21nov/stream">remarks delivered at a conference</a> ahead of their release, Governor Michele Bullock said what concerned her was stronger-than-expected <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2023/2023-11-07.html">demand pressures</a>. Australians remained keen to spend.</p>
<p>And she drew attention to disturbing</p>
<blockquote>
<p>growing signs of a mindset among businesses that any cost increases could be passed onto consumers </p>
</blockquote>
<p>But what has just happened overseas will help, big time. Here’s why.</p>
<h2>Australians’ buying power just jumped</h2>
<p>As soon as the news of low US inflation came out last Tuesday, the US dollar <a href="https://www.reuters.com/markets/currencies/yens-slide-multi-decade-lows-keeps-markets-intervention-alert-2023-11-14">slid</a>. </p>
<p>Investors became less keen to hold US dollars when it became less likely that US interest rates would rise further, and a good deal more likely they would fall.</p>
<p>Against the Australian dollar, the US dollar fell 2%. From an Australian’s point of view, the buying power of an Australian dollar jumped from 63.7 to 64.9 US cents and has since jumped to 65.8 US cents. </p>
<hr>
<p><strong>A sudden jump in the value of the Australian dollar</strong></p>
<hr>
<p>This means that, for as long as it lasts, Australian dollars will buy more than they did. </p>
<p>Australians will pay less in Australian dollars for the goods and services ultimately paid for with US dollars. The changed interest rate outlook in the US will act to keep Australian prices low.</p>
<p>In this way, decisions made in the US not to increase interest rates or even to cut them make it easier for Australia’s Reserve Bank not to increase rates – or even to cut them.</p>
<h2>A higher dollar means lower inflation</h2>
<p>The effect isn’t big. The RBA believes it takes a 10% change in the value of the Australian dollar to move the Australian
inflation rate <a href="https://www.afr.com/markets/debt-markets/diverging-rate-outlook-turbocharges-a-as-us-inflation-eases-20231115-p5ek13">0.4 percentage points</a>.</p>
<p>But it is better than things moving in the other direction, which is what has been happening until now. </p>
<p>For more than a year now, whenever interest rates have climbed in the US, Australia’s Reserve Bank has been under pressure to push up its rates to stop the Australian dollar falling and prices climbing.</p>
<p>No longer. After last week’s news from the US and the UK, Australian financial markets began pricing in a <a href="https://www.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker">close to zero</a> chance of further interest rate rises – with a fair chance of a rate cut next year.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-its-a-good-bet-the-melbourne-cup-day-rate-hike-will-be-the-last-217094">Why it's a good bet the Melbourne Cup Day rate hike will be the last</a>
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<p>It’s always impossible to tell for sure what the Reserve Bank will do to rates. A lot will depend on what actually happens to inflation. </p>
<p>But for the first time in a long time, the Reserve Bank has tail winds from overseas, rather than headwinds.</p>
<p>For the first time in a long time, the bank won’t feel pressured to push up rates just because rates have been pushed up overseas.</p><img src="https://counter.theconversation.com/content/218225/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation. </span></em></p>Australian financial markets are now pointing to a close to zero chance of further rate rises – with a fair chance of a rate cut next year. That’s thanks to the latest news from the US and UK.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2163992023-11-19T13:00:25Z2023-11-19T13:00:25ZFood insecurity in Canada is the worst it’s ever been — here’s how we can solve it<p>According to the latest Statistics Canada data, household food insecurity in the 10 provinces has reached a record high. Drawing on data from StatCan’s Canadian Income Survey, our <a href="https://proof.utoronto.ca/resource/household-food-insecurity-in-canada-2022/">new report</a> has found that the percentage of households with inadequate or insecure access to food due to financial constraints rose to 17.8 per cent in 2022 from 15.9 per cent in 2021.</p>
<p>That amounts to 6.9 million Canadians — 1.1 million more than in 2021 — living in households with experiences that range from worrying about running out of food before there’s enough money to buy more to not eating at all for entire days because of a lack of income.</p>
<p>One-quarter of food-insecure households were severely food insecure, meaning 1.5 million Canadians had to cut or skip meals over the past 12 months.</p>
<p>These estimates don’t include people living in First Nations or the territories – the Northwest Territories, Yukon and Nunavut – <a href="https://proof.utoronto.ca/resources/indigenous-food-insecurity/">where rates of food insecurity are typically even higher</a>.</p>
<p>The rate of household food insecurity differs dramatically across the provinces, ranging from 13.8 per cent in Québec to 22.9 per cent in Newfoundland and Labrador in 2022. Every province experienced an increase from the previous year.</p>
<h2>Health-care system impact</h2>
<p>These numbers are important because they tell us about more than just household food situations. By the time someone reports being unable to afford the food they need, they’re likely compromising spending on other necessities, like housing and <a href="https://doi.org/10.9778/cmajo.20190075">prescription medications</a>.</p>
<p>Living in these circumstances is <a href="https://proof.utoronto.ca/food-insecurity/what-are-the-implications-of-food-insecurity-for-health-and-health-care/">very harmful to people’s health and well-being</a>. The health implications extend beyond poor nutrition and diet-related diseases to a sweeping array of adverse health outcomes, including physical and mental health conditions and <a href="https://doi.org/10.1503/cmaj.190385">premature death</a>.</p>
<p>When we look at the health administration records of Canadians living in food-insecure households, the extraordinary toll food insecurity is taking on individuals and on our health-care system is obvious.</p>
<p>Because their health is worse, people living in these households require more health care. Both <a href="https://doi.org/10.17269/s41997-023-00812-2">the children</a> and <a href="https://doi.org/10.1503/cmaj.150234">the adults</a> in food-insecure households are more likely to use outpatient services and to be hospitalized. Once admitted, <a href="https://doi.org/10.1377/hlthaff.2019.01637">they stay in acute care for longer and are more likely to require readmission</a>. </p>
<p>The increased use of the health-care system translates to greater health-care costs and an additional burden on our public system that simply isn’t necessary.</p>
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<h2>Evidence-based policy interventions</h2>
<p>Reducing food insecurity requires concerted efforts by federal and provincial governments to address the root cause — the inadequacy of household incomes to meet basic needs. </p>
<p>Providing better income support gives households a fighting chance of managing sudden losses of income or increases in expenses without having to compromise necessities.</p>
<p>Studies have shown food insecurity decreases when low-income households receive more money via <a href="https://doi.org/10.1016/j.amepre.2023.01.027">child benefits</a> or <a href="https://doi.org/10.3138/cpp.2014-080">social assistance programs</a>. That’s also the case when households transition to a more adequate and stable source of income — namely, when low-income adults become <a href="https://doi.org/10.3138/cpp.2015-069">eligible for public pensions programs</a>, Old Age Security and Guaranteed Income Supplement. </p>
<p>However, the way these programs are currently designed means our social safety net is anything but.</p>
<h2>Public income supports</h2>
<p>Households with limited or no employment income and reliant on provincial social assistance or Employment Insurance are very likely to be food insecure. Relying on social assistance almost guarantees food insecurity; seven in 10 households on social assistance were food insecure in 2022.</p>
<p>In most jurisdictions, social assistance benefits aren’t indexed to inflation, so the poorest people in our communities become even poorer as prices rise. Provinces should look to raise and index benefit amounts, asset limits and earning exemptions so that recipients have enough for basic needs while in these programs of last resort.</p>
<p>Households reliant on employment income fare better, but simply having a job isn’t enough to prevent food insecurity. In fact, the main source of income for 60 per cent of food-insecure households in the 10 provinces is salaries and wages. The policies meant to support workers in need, like the Canada Worker Benefit and similar provincial benefits, are clearly insufficient.</p>
<p>There’s also a need to expand job opportunities and improve the quality and stability of employment through policies like higher employment standards, support for collective bargaining and increased minimum wage, which several provinces are embracing.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/levelling-the-playing-field-the-case-for-a-federal-anti-scab-law-217341">Levelling the playing field: The case for a federal ‘anti-scab’ law</a>
</strong>
</em>
</p>
<hr>
<h2>Children in food-insecure households</h2>
<p>The Canada Child Benefit has been widely credited for reducing child poverty, but this benefit goes to <a href="https://www.ourcommons.ca/DocumentViewer/en/42-1/HUMA/meeting-149/evidence#Int-10639051">90 per cent of families in Canada</a>. In stretching itself so thin, the benefit isn’t providing enough support to the families that really need it. </p>
<p>Just having a child in the household means a higher risk of food insecurity in Canada. In 2022, 1.8 million children — or one in four — under the age of 18 lived in a food-insecure household. Households with children also made up the majority of the increase in food insecurity from 2021 to 2022. The Canada Child Benefit needs to be restructured to insulate lower-income families from food insecurity more effectively.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/canadas-welfare-system-is-failing-mothers-with-infants-204716">Canada's welfare system is failing mothers with infants</a>
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</em>
</p>
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<p>Governments have failed to implement enduring changes to income policies informed by research on food insecurity. Instead, we’ve almost exclusively seen small, limited-time benefits, like the federal Grocery Rebate, and <a href="https://theconversation.com/canadas-national-food-policy-is-at-risk-of-enshrining-a-two-tiered-food-system-205741">continued funding for community food programs</a> as the response to the hardships Canadians are facing. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/federal-budget-2023-grocery-rebate-is-the-right-direction-on-food-insecurity-but-theres-a-long-road-ahead-201926">Federal budget 2023: Grocery rebate is the right direction on food insecurity, but there's a long road ahead</a>
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</em>
</p>
<hr>
<p>The noteworthy exception is the <a href="https://www.gov.nl.ca/releases/2023/exec/1108n01/">newly announced Poverty Reduction Plan in Newfoundland and Labrador</a>. The existing research suggests that it will help reduce food insecurity in that province.</p>
<h2>Food insecurity festers</h2>
<p>The prevalence and severity of food insecurity in Canada has likely already worsened since 2022, given continued high inflation — particularly the <a href="https://www.ctvnews.ca/canada/canadian-housing-costs-have-hit-30-year-high-statcan-data-shows-1.6568256">record-setting increases in the cost of food, rent and mortgage interest</a> — and a lack of major policy action to offset the added burden on households.</p>
<p>The persistence of food insecurity in Canada is a policy choice. By not doing more to improve the adequacy and stability of household resources, our federal and provincial governments are choosing to let food insecurity fester. </p>
<p>In doing so, they are allowing the health of millions of Canadians to be eroded as we unnecessarily tax our already over-burdened health-care system.</p><img src="https://counter.theconversation.com/content/216399/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Valerie Tarasuk receives funding from the Canadian Institutes of Health Research. She has previously received research funds from the Joannah and Brian Lawson Centre for Child Nutrition and a consulting fee from the Office of the Auditor General of Canada.</span></em></p><p class="fine-print"><em><span>Tim Li does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The persistence of food insecurity in Canada is a policy choice. By not doing more to improve the adequacy and stability of household income, governments are choosing to let food insecurity fester.Valerie Tarasuk, Professor of Nutritional Sciences, University of TorontoTim Li, Research Program Coordinator, Food Insecurity, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2180552023-11-17T17:18:24Z2023-11-17T17:18:24ZPrice inflation is slowing, but here’s why it still feels like we’re in a cost of living crisis<figure><img src="https://images.theconversation.com/files/560166/original/file-20231117-21-ysib4m.jpg?ixlib=rb-1.1.0&rect=36%2C60%2C7969%2C5281&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/woman-gloves-hot-drink-bill-trying-2212717461">Daisy Daisy/Shutterstock</a></span></figcaption></figure><p>The latest UK consumer price index (CPI) data has been <a href="https://twitter.com/RishiSunak/status/1724711277996503057">hailed as a win</a> for prime minister Rishi Sunak’s aim to half inflation, announced earlier this year. Prices <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">rose by 4.6%</a> in October 2023, bringing the rate of price growth down to its lowest point since an October 2022 peak of <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">11.1%</a>. </p>
<p>But inflation coming down gradually does not mean prices are falling – they are merely increasing at a slower pace. Prices remain high, deepening the cost of living crisis for many, especially those whose nominal wages have not increased at pace with inflation in recent years. </p>
<p>Compounding this, <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/articles/cpihconsistentinflationrateestimatesforukhouseholdgroups20052017/novembertodecember2022">poor households spend</a> a bigger proportion of their income on food, energy, and rent – three costs that have spiked the most in recent years, and still remain high.</p>
<p>A decline in energy prices was the biggest contributor to the recent inflation slowdown. But even though electricity, gas and other fuel costs have fallen by <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">21.7%</a> since October 2022, these prices remain very high. </p>
<p>Gas prices are about <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">60%</a> higher than they were in October 2021 and the price of electricity is about <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">40%</a> higher. Compared to January 2021, electricity, gas and other fuel costs are currently 82% higher.</p>
<p>Annual inflation in the price of food and non-alcoholic beverages is also still high at <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">10.1%</a>. October 2023 food prices were around <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2023">30%</a> higher than in October 2021, while private rents are up by <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/previousReleases">11.5%</a> compared to January 2021.</p>
<p>The government’s <a href="https://news.sky.com/story/more-than-a-million-work-days-lost-to-strike-action-in-2022-12775946">fears of a wage-price spiral</a> – its reasoning for holding out against public sector strikes for so long – have also failed to materialise. </p>
<p>An adequate increase in public sector pay in health, education and the civil service would have reversed decades of below-inflation pay for these workers. And public sector wages do not directly lead to rising input costs for private companies, and so would have done little to fuel a wage-price spiral.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/strikes-why-refusing-public-sector-pay-rises-wont-help-reduce-inflation-198333">Strikes: why refusing public sector pay rises won't help reduce inflation</a>
</strong>
</em>
</p>
<hr>
<p>Recent wage disputes and high job vacancy rates have delivered only <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearningsearn01">modest increases in real pay</a> in the public sector (1.4%). Wages have stagnated in manufacturing and wholesaling, retailing, hotels and restaurants sectors, and fallen in construction (by 2.8%) as of September 2023 compared to September 2022. </p>
<p>The only sectors that saw a substantial real pay rise are finance and business services (2%) and transport and storage (15.8%). In fact, real wages remain below pre-pandemic levels in all other sectors.</p>
<p><strong>Wages are stagnant or falling in some sectors:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line graph showing changes to weekly earnings, as described in the article." src="https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/560162/original/file-20231117-17-9l9t8x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Real average weekly earnings (total pay including bonuses and arears, seasonally adjusted, deflated using CPIH in constant 2015 prices).</span>
<span class="attribution"><a class="source" href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearningsearn01">Author provided using Office for National Statistics data.</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Boosting profits</h2>
<p>Meanwhile, some firms have added the rising costs of inputs like energy and food into the price of the goods they sell, squeezing the poorly-paid from the other side. Some have even increased their profit margins <a href="https://www.ippr.org/research/publications/prices-and-profits-after-the-pandemic">since 2021</a> by raising prices at a faster rate than the increase in their input costs. </p>
<p>A <a href="https://bankunderground.co.uk/2023/09/07/profit-margins-and-firm-price-growth-evidence-from-the-decision-maker-panel/">Bank of England survey</a> shows many of the firms with the highest profit margins are expected to increase their profit margins further in 2023, while firms with the lowest profit margins reported a drop in 2022, and are only expected to see a partial recovery this year. </p>
<p>Wages could increase without causing higher inflation if the top firms cut their profit margins. This would also help the firms who were not able to pass on high input, wages or borrowing costs to their customers. With <a href="https://www.gov.uk/government/statistics/monthly-insolvency-statistics-october-2023">company insolvencies at a 14-year high</a>, they are instead cutting back non-essential spending.</p>
<p>But the government has done little to address the rise in profit margins for the top companies beyond a limited energy price cap and windfall taxes on energy companies. As food prices soared, government intervention <a href="https://www.theguardian.com/politics/2023/may/16/farmers-dismiss-sunaks-farm-to-fork-summit-as-an-empty-meeting">amounted to meetings</a> with the farmers, food producers and some of Britain’s largest supermarkets to discuss capping price increases in 2023 without actual price controls.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/six-ways-the-upcoming-autumn-statement-could-affect-your-personal-finances-217854">Six ways the upcoming autumn statement could affect your personal finances</a>
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</em>
</p>
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<p>Chancellor Jeremy Hunt’s upcoming autumn statement is unlikely to offer many solid solutions to tackle the cost of living crisis or problems with public physical and social infrastructure. Hunt is expected to stick to the narrative that a reduction in public debt/GDP is essential to fight inflation. </p>
<p>Similarly, the Bank of England may hold interest rates again at its next Monetary Policy Committee meeting in December, despite stagnation in <a href="https://www.theguardian.com/business/2023/nov/17/fall-in-retail-sales-in-great-britain-signals-high-street-recession">consumer demand</a> and <a href="https://www.theguardian.com/business/live/2023/sep/25/uk-economy-slowdown-renewed-signs-of-stress-ftse-stock-market-pound-business-live?filterKeyEvents=false&page=with:block-65111dda8f087d5106a1286b#block-65111dda8f087d5106a1286b">business investment</a>. </p>
<p>These policies will not help to address the multiple intersecting crises facing the UK right now, including inequalities in class, gender and race, ecological breakdown, geopolitical turmoil and technological change – not to mention the ongoing cost of living crisis.</p><img src="https://counter.theconversation.com/content/218055/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Özlem Onaran received funding from ESRC Rebuilding Macroeconomics, International Trade Union Confederation, Women’s Budget Group, American University, the Institute for New Economic Thinking, the Foundation of European Progressive Studies, the Vienna Chamber of Labour, and Unions21.</span></em></p>Prices remain high and there is much more the government could do to help people.Özlem Onaran, Professor of Economics, University of GreenwichLicensed as Creative Commons – attribution, no derivatives.