If Reserve Bank governor Michele Bullock is trying to demonstrate to Australians that she’s completely out of touch with the lives of ordinary working households, she’s doing a damn fine job.
She’s already been in trouble once when, as deputy governor, she said unemployment was going to have to rise above 4% to get inflation down — drawing immediate criticism that she was urging working people to be treated as cannon fodder in the fight against inflation. The criticisms were unfair. She was merely stating the obvious, even if she could have expressed it with more care.
But there was nothing unfair about the criticism this week about a speech by Bullock on Wednesday titled “A monetary policy fit for the future” to the Australian Business Economists annual dinner. (That Reserve Bank executives are forever addressing gatherings of economists and bankers is a perception problem; they don’t have to rock up and hand out the meat tray at Rooty Hill RSL, but just for once it’d be good to see someone from the RBA address a gathering of ordinary Australians).
Bullock described inflation as “increasingly homegrown and demand-driven”, and by way of evidence she said an indicator that “inflation is being driven by domestic demand is that it is increasingly underpinned by services. Hairdressers and dentists, dining out, sporting and other recreational activities — the prices of all these services are rising strongly.”
The first thing that should be noted is, well done to Bullock for realising that our inflation problem is homegrown. But there’s nothing “increasingly” about it — it’s been homegrown since Australian companies began using the cover of imported inflation to jack up prices and increase profit margins. Not that Bullock wants to accept this — that’s why she added “demand-driven” — inflation must always be the fault of ordinary households, not business.
And Bullock has a message for us all: we’re spending too much on haircuts, dentists, eating out, going to concerts and sporting events. To get inflation down, Bullock suggests don’t leave the house, do your own haircut and take some Panadol for a toothache rather than go to the dentist. Of course, if you’re going to confine yourself to home and not go to a concert or the footy or a meal out, you won’t need a decent haircut anyway.
Delivering a punitive message to Australians that they need to quit fripperies such as a Taylor Swift concert or a meal at the pub and adopt a more puritan lifestyle to lower inflation is one thing. Similar views have regularly been expressed in the media, especially towards younger people. But telling Australians they need to reduce demand for dentistry? Does she think the nation’s dental clinics are filled with people wanting to indulge in a hit of laughing gas while they get a filling or have root canal?
According to a recent Grattan Institute report, 16% of Australians can’t afford to go to the dentist when they need to. A third of us have untreated tooth decay. But sure governor, we’re all just partying at the dentist.
Bullock’s puritanism extends to insurance, which she repeatedly identified this week as another prominent area of inflation. Perhaps she thinks Australians should ditch home and car insurance? Except there are major costs that are unavoidable because governments require insurance such as compulsory third party, or banks make loans conditional on mortgage insurance.
And insurance is exactly the area where old monetary policy thinking collides with the world that will become the norm as the 21st century progresses — one that is hotter, has fewer workers and is more fragmented.
Insurance companies have been raising premiums to rebuild reserves and rebalance their portfolios after the bushfire losses in 2019-20, the impact of COVID, then the long La Niña and the terrible floods in parts of Queensland, NSW, Victoria, South Australia and northern WA. As we enter an El Niño summer, insurance companies will be mindful of the probable cost of bushfires again. Major insurers, led by IAG, Allianz and Suncorp, have had to raise extra capital and pay more for reinsurance.
It’s a perfect example of how the climate crisis is going to create a more inflationary world, one beyond the capacity of policymakers, and certainly ordinary households, to fix. Belting households with higher interest rates won’t make a shred of difference either to extreme weather or the need for people to insure themselves. But hey, let’s treat insurance as another lifestyle frippery.
It’s painful watching the nation’s premier independent policymaker demonstrate how out of touch she is. Like having teeth pulled.
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