Central Banks Show True Colours...

The public are an inconvenience to central banks. People tend to act irrationally, or at least, differently to how the bankers would like people to react. That causes problems for central banks...

If you ever needed proof…

Proof that central banks are more concerned with their ‘models’ than they are with the real world.

Look no further…

…than the latest Research Discussion Paper from the Reserve Bank of Australia (RBA).

It contains all you need to know about how the central bankers view the world and the people who are part of it.

Needless to say, the banks’ interests don’t always align with the interests of the people.

More below…

The title of the latest RBA discussion paper is, ‘How Do Households Form Inflation and Wage Expectations?’

Inflation, is of course, right in the bailiwick of RBA expertise. For it is they that cause most of it to occur.

So the tone of the discussion paper doesn’t surprise us in the slightest.

It is as though the public and the public’s actions are an annoyance to what the RBA wants to achieve.

For example, this from the paper:

‘[As] inflation rises workers may want to maintain the real purchasing power of their labour income, and so wage and inflation expectations may be mechanically linked. To the extent that this feeds into higher prices, this can put further upwards pressure on prices and amplify the effects of supply or other shocks. Thankfully, recent work suggests that the extent to which this amplification leads to a spiralling of wages and prices is limited in advanced economies.’

They seem almost annoyed that workers ‘may want to maintain the real purchasing power of their labour income’. How shameful that anyone wants to maintain their wealth, rather than having a central bank and government destroying it with inflation.

How ungrateful.

As for our take on this. We see it as just more evidence the RBA is working behind the scenes to change its inflation targeting.

In order to do that, the RBA needs to understand how people react to changes in prices and forecasts for inflation.

Their ideal situation will be to manage the increase in the inflation target gradually. A subtle change in the language so that it doesn’t ‘spook’ consumers.

But that’s unlikely to take much time or much effort.

As we’ve pointed out previously, mainstream economists have already pushed out ‘thought bubbles’ in op-ed essays in newspapers.

It’s only a matter of time before they feel the timing is right to do that.

The central bank boffins are figuring that out now. Hence the discussion paper, and the need for them to understand how they think consumers will react to the new inflation targeting.

We look forward to seeing you back here tomorrow.

Kris Sayce
Editor, Crack of Doom

Issue 48 of 10,000

(We believe in the importance of setting goals. And we figure what better way than to set a big goal from the beginning. If all goes to plan, our final issue of Crack of Doom will be sometime in the 2060’s!)

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