Reserve Bank of Australia Governor Philip Lowe’s global inflation worries after Jack Dorsey warning

Billionaire Twitter co-founder Jack Dorsey’s warning about hyperinflation may not have been as far-fetched as it seems, and the Reserve Bank of Australia admits it is concerned about global supply shocks.

Rapid, stratospheric price increases have historically been associated with the economies of e.g. Zimbabwe, Venezuela and the Weimar Republic of Germany from the 1920s.

But Covid supply constraints could potentially create the kind of double-digit inflation last seen during the long-term aftermath of the OPEC oil crisis more than four decades ago.

So even though Australia is not experiencing hyperinflation, there is still uncertainty about prices, but workers can at least look forward to a decent wage increase after eight years of below-average wage increases.

Reserve Bank Governor Philip Lowe expressed concern over global price pressures due to Covid restrictions.

“It is also possible that the global inflation shock is more persistent than expected and that this is being transferred to Australia,” he said.

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Twitter billionaire co-founder Jack Dorsey's warning of hyperinflation may not be so far off as the Reserve Bank of Australia admits it is worried about global supply shocks

Twitter billionaire co-founder Jack Dorsey’s warning of hyperinflation may not be so far off as the Reserve Bank of Australia admits it is worried about global supply shocks

Dr. Lowe said Tuesday that while global inflation problems could be resolved in six months, as economies reopened from downturns, it was far from guaranteed.

“There’s a lot of uncertainty around that,” he said.

‘People are talking about supply problems, which are largely supply problems due to strong demand.

“Covid affected production capacity, but the bigger picture here is a very, very strong demand for goods around the world, and that is putting upward pressure on prices.”

Australian wages grew by just 1.7 per cent over the past financial year and have been below the long-term average of 3 per cent since mid-2013.

But Westpac, Australia’s second-largest bank, predicts that unemployment will fall to 3.8 per cent by the end of 2022 and reach a level last seen in 1974, when wage growth hit 2.8 per cent next year.

The unemployment rate has never fallen below 4% since the Australian Bureau of Statistics began collecting monthly labor force data in early 1978.

Dr. Lowe said a fall in unemployment, from 4.6 percent in September, would cause bosses to offer wage increases to retain staff, which would lead to faster wage growth.

“There is also uncertainty about how wage growth responds to unemployment being close to 4 percent over an extended period,” he said.

‘We have little historical experience to guide us, and there is also the question of the impact on labor supply of the opening of the international border.’

Economists traditionally consider unemployment below 5 per cent for an extended period of time as a level leading to higher wages, but this has not happened during the recovery from previous Covid restrictions in Australia.

Reserve Bank Governor Philip Lowe expressed concern over global price pressures due to Covid restrictions

Reserve Bank Governor Philip Lowe expressed concern over global price pressures due to Covid restrictions

Dorsey created stir on October 24, Australian time, to suggest that global supply shortages would cause hyperinflation.

‘Hyperinflation is going to change everything. It happens, he said.

The 44-year-old social media mogul issued a grim warning that rising inflation in the US would become a global threat of infection: ‘It will soon happen in the US, and then in the world.’

The phenomenon is usually associated with tin pot dictatorships instead of first world countries that are capable of producing goods or have strong currencies.

Zimbabwe under the murderous tyrant Robert Mugabe had inflation of 79.6 billion per cent in 2008.

Dorsey caused stir on October 24, Australian time, to suggest that global supply shortages would cause hyperinflation

Dorsey caused stir on October 24, Australian time, to suggest that global supply shortages would cause hyperinflation

The 44-year-old social media mogul issued a grim warning that rising inflation in the US would become a global threat of infection: 'It will soon happen in the US, and then in the world'

The 44-year-old social media mogul issued a grim warning that rising inflation in the US would become a global threat of infection: ‘It will soon happen in the US, and then in the world’

It came eight years after his ZANU-PF government forcibly took over white-owned farms, causing widespread food shortages and pushing the price of bread up to $ 10 million Zimbabwe dollars when a bag of potatoes cost $ 160 million in local currency.

Worse hyperinflation in history

Germany: 29,500 percent per month in October 1923

Greece: 13,800 percent per month in October 1944

Zimbabwe: 79,600,000,000 percent per month in November 2008

Venezuela: 10,000,000 percent in 2019

In Venezuela, under the socialist leadership of Hugo Chavez’s successor Nicolás Maduro, hyperinflation in 2019 hit 10 million percent.

This meant that a kilo of milk powder cost 19,995 bolívar or half a typical salary.

Hyperinflation gripped the Weimar Republic of Germany after World War I and saw money carried around in wheelbarrows in the early 1920s, following the tough claims for compensation from the French-led Treaty of Versailles.

A loaf of bread cost 200,000 million marks in November 1923 and saw the Germans turn to barter when monthly hyperinflation reached 29,500 percent.

As for Australia, total inflation for the year to September was 3 per cent, which was at the top end of the Reserve Bank’s target of 2 to 3 per cent.

Gasoline was the largest contributor, with prices rising 7.1 percent in just three months, nearly double the quarterly 3.8 percent increase in furniture prices.

Australia’s consumer price index grew by 3.8 per cent a year until June 2021, the fastest growth since 2008, when the mine boom coincided with the global financial crisis.

Zimbabwe under the murderous tyrant Robert Mugabe had an inflation rate of 79.6 billion in 2008. It came eight years after his ZANU-PF government forcibly took over white-owned farms, causing widespread food shortages and pushing the price of bread up to $ 10 million Zimbabwean dollars.  when a bag of potatoes cost $ 160 million in local currency (the picture is a queue for a bank in Bulawayo in June 2008)

Zimbabwe under the murderous tyrant Robert Mugabe had an inflation rate of 79.6 billion in 2008. It came eight years after his ZANU-PF government forcibly took over white-owned farms, causing widespread food shortages and pushing the price of bread up to $ 10 million Zimbabwean dollars. when a bag of potatoes cost $ 160 million in local currency (the picture is a queue for a bank in Bulawayo in June 2008)

Double-digit inflation has not hit Australia since growing at an annual rate of 11.1 percent in June 1983.

During that time, annual inflation had been double-digit since December 1981, when the prolonged aftermath of the OPEC oil crisis and a long drought in Australia kept prices high.

The Reserve Bank of Australia had until recently promised to keep the cash rate at a record low level of 0.1 per cent until 2024 ‘earliest’, but on Tuesday Dr. Lowe that monetary policy could be tightened earlier as inflation rose and unemployment fell.

“It is now also plausible that a boost in the cash exchange rate could be appropriate in 2023,” he said.

The RBA put prices on hold on Tuesday and announced their decision shortly before the Melbourne Cup.

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