Bigger isn’t always better. Take it from the inflation rate.
The mechanics behind inflation are straightforward. It’s supply and demand on an economy-wide scale. We have a limited supply of resources and an unlimited desire for them. If everyone starts buying more, prices will go up. If fewer resources are available and demand is unchanged, prices will (also) go up.
We are used to “demand-pull” inflation. Households get a bonus (perhaps equal pay for equal work, or a reprieve on interest payments). The economy is flooded with extra cash, which people go out and spend. Hey presto – inflation rates rise.
Interest rates are very effective at addressing demand-pull inflation. For the 37% of households with a mortgage, it means less money to spend. The 31% of households who rent are also likely to feel the pinch; investors pass on increased costs.
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We’re now facing a different beast. The hot air is coming from supply. The war in Ukraine is having a big impact on the global availability of wheat and oil. China’s zero-Covid policy means factories getting shut down at a moment’s notice. We have not yet recovered from the Covid-induced global supply chain hangover. Hair of the dog is certainly not making things any better.
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Locally, floods on Australia’s east coast are hurting agricultural production. Yes, “lett-uce” spend some time worrying about fresh food prices. It won’t be the first time. Natural disasters have restricted the supply of produce before. Keen eaters will remember going bananas for bananas in 2011 and getting smashed by avocados in 2016. Today’s shortages in locally grown produce should, likewise, be temporary. Still, less agricultural output is adding to a perfect storm of supply-based inflationary pressures.
So inflation at the moment has little to do with us wanting more. We’re already taking proactive steps to protect our hip pockets in the face of rising interest rates. While prices have gone up, household spending has not.
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How is that possible? The simple explanation is households are buying less.
This isn’t great for GDP. Buying more at a higher price would mean increases in total expenditure. But that doesn’t make lower household expenditure bad. After all, GDP shouldn’t be the only thing we care about.
Perhaps higher prices will teach us to put more value on – and extract more value from – the things we buy.
Australians have long benefited from low prices on staples. Bread, milk, fruit, vegetables – you name it. Food inflation in Australia is low compared with other counties.
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We have hectares of fertile land in varied climates. Our agricultural industries and farmers are world class, and highly competitive. Eaters worldwide see Australian produce as a premium product, and they’re prepared to pay for it.
Yet we have a bad habit of taking our fresh food for granted. We waste over 300kg of food per person, every year. That’s one in every five grocery bags going into the bin. It means the average household is literally throwing away between $2,000 and $2,500 worth of food every year. Seventy per cent of this food is still perfectly edible.
The costs of food waste go beyond money. Food waste accounts for approximately 3% of Australia’s greenhouse gas emissions. It also means a waste of land and water. Think of all the resources used to grow things that end up in a bin.
It’s easy to be complacent about food waste. Eyes bigger than stomachs and limited shelf life mean that perhaps some level of food waste is inevitable.
But it’s not the only thing that we’re wasteful with.
Take clothing. You’d think that with a warm climate and a fondness for swimwear, we wouldn’t be big consumers of clothing.
You’d think wrong. We are second in the world on per capita purchases of new clothing. Australians buy 27kg of clothes every year. That’s equivalent to a new pair of jeans every week – and jeans are heavy. The only country ahead of us is the United States.
We don’t let the clothes sit in our closets, either. An astounding 23kg per person per year – equivalent to 85% of new purchases – end up in landfill.
There’s no better time to renew conversations about the circular economy. Circular principles could help us get more value out of what we’ve already got – and possibly even make some pocket money on the way. How about leasing out that party outfit? The overripe banana would make a great smoothie or a loaf of banana bread.
Decoupling economic activity from the consumption of finite resources is great for household budgets – especially when things are tight. It would also ease some of the supply-side inflationary pressures. Sure, buying less may not directly translate into GDP. But it would have benefits for our planet. It may even contribute to leaving this world a little better than it was when we inherited it.
Jessica Mizrahi is an economic consultant and commentator. She has taught, researched and applied economics for over a decade
