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Australia entering into hyperinflation? (update 2) – retail figures up

Posted by Adrian on January 9, 2008

With the outgoing blundering conservative Australian government offering huge tax breaks (to buy votes, which ultimately failed as they loss the election), the indebted consumer followed the same trend as the American consumer prior to last Christmas – bigger than expected retail sales (on the back of credit cards). As America falls into a widespread and severe recession mixed with inflation, the fall of the USD; the Federal Reserve rate cutting policy will remain the mainstay of a problematic economy. But Australia is falling into a false hope, with some bank economist’s and politician’s 0ffering a ‘oasis’ perspective to an economy that is clearly becoming runaway with inflation. The bizarre and misleading commentary from some economist’s is that somehow Australia will not be effected or be little effected by the largest economy in the world, the US economy as it falls into recession, Japan’s stagnation, collapsed stock market and low growth, Europe’s serious credit issues, falling economies and collapsing housing markets. So, to somehow assume that Australia can detach from a global economy and it’s problems, is not only misleading but it’s the mere suggestion that Australia will be ‘ok’ (especially when that ‘advice’ comes from a particular Australian bank economist) is in it’s self negligent. What has happened in Australia (as far as the credit markets) is the banks have increased fees, interest rates (independent from the Reserve Bank of Australia) – slowly tightening the credit lines to the consumer, with two major banks increasing their variable mortgage rates (NAB up 0.1% and ANZ up 0.2%). The RBA should have kept a tightening bias till the end of 2007, if they were serious about containing inflation or lessening a dramatic downturn in the Australian economy.

Retail sales have come in at 0.8 percent in November from October to 20.1 billion Australian dollars, this should have been expected. As the banks tighten to protect their balance sheets, the poor consumer is doing the opposite. In my opinion Australia is in great risk of a sharp downturn in the economy, the RBA sits on the 28th January to decide whether to lift increase rates in early February 2008. If they do pause and do not increase the cash rate, under the impression the global credit crisis will hold back consumers with retail banks tightening interest rates. Yet, credit will still be used to offset high costs, namely food, rent and living expenses including utility costs.

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2 Responses to “Australia entering into hyperinflation? (update 2) – retail figures up”

  1. […] question now with Australia entering into a harsh period of hyperinflation, will the Reserve Bank of Australia increase interest rates. If they do decide to hold rates at […]

  2. […] Australia entering into hyperinflation? (update 2) – retail figures up […]

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