Stagflation, recession and the price of lettuce


staglation and lettuce (Photo

It used to be that using the R word in a headline was tantamount to a self-fulfilling prophecy, so I added ‘lettuce’ to diminish the risk.

Those inventive purveyors of ‘memes’ (visual satire), have been going on about the supposed price of lettuces in Australia – ‘tip of the iceberg’ and suchlike puns. I tend to invoke the Darryl Kerrigan mantra when confronted with over-priced food items (as much as $11). Darryl, from the Australian film The Castle, is fond of saying ‘tell them they’re dreaming’ when told how much someone wants for a second-hand item.

You may have noticed the proliferation of articles aimed at making your dollar go further at the supermarket (and butcher). The two things these shopping guide articles have in common is they all insist on having a plan (a weekly menu) and many of them advise going quasi-vegetarian.

A wise friend of mind from a large family adds a third piece of advice when prices are starting to rise, as they have been doing since March this year.

“I shop around and always look for what’s reasonable. Cauliflowers are quite cheap at the moment, so I bought a couple, whipped up a white sauce, added some bacon and there’s a nice lunch right there.”

She Who Goes by Various Acronyms specialises in making nutritious soups, which also go well with the cold weather. All she needs is a packet of soup mix, pumpkin, sweet potato, carrots and whatever else is affordable at the (organic) fruit and vegie shop.

Now I’m going to delve into global inflation, why it’s happening and what can be done about it. We are not yet in times of stagflation (high inflation and high unemployment/low wages),but watch this space. We all know that the price of fuel, energy and food is rising rapidly. Australia’s official inflation rate increased to 5.1% in the March quarter, due to higher construction costs and fuel prices.

Unemployment may start to rise once the first batch of house builders (who quoted on a fixed price) go broke because of the rising cost of timber and other building materials. Reserve Bank governor Phillip Lowe told the ABC’s 7.30 he believed inflation could go to 7% by the end of the year (as it is now in the UK)

As happened to the Whitlam government in the early 1970s, Anthony Albanese’s Labor government is taking their turn at the wheel just as the perfect economic storm is breaking. The war in Ukraine, a weakening Australian dollar, rising automotive fuel price, an energy crisis and lingering disruption to the supply chain are just some of the challenges.

As so often happens when you write a weekly opinion piece, someone else will get to the topic first, as economic commentator Alan Kohler did in the New Daily.

Kohler’s piece deals with “the two great stupidities behind our inflation”.

“Unlike previous episodes, this inflation is NOT caused by galloping consumer demand or runaway wages, which is what higher interest rates are designed to suppress, but by two colossal stupidities that are entirely impervious to the Reserve Bank.”

Kohler calls Vladimir Putin’s war in Ukraine ‘Stupid No 1’ pointing to trade embargoes and disruption to the global supply of fuel and commodities like coal.

So now we have an energy shock like that of 1973 (which led to a recession in 1974). Kohler the says the Reserve Bank of Australia is  “trying to make sure we have a recession this year, by adding a credit squeeze to an energy shock”.

As we know, the RBA has raised official interest rates twice in recent months. Lowe told the ABC’s Leigh Sales interest rates could go as high as 2.5%, a rude shock, given that the RBA told the public (when?) there’d be no rate hike until 2024.

Kohler’s second ‘Stupid’ claim is Australia’s lack of a cohesive energy policy, including a “capacity mechanism”. By that he means paying someone to keep spare electricity generation capacity on tap to cover power station or grid failures.

The real culprit in rising inflation though is Australia’s supply chain, disrupted by two years of restrictions on movement due to the pandemic. Add to that the ongoing cycle of disruption to roads and railways caused by a series of extreme weather events and we’re in a bit of a pickle. The rising price of diesel was passed on to us as consumers by transport companies keen to keep the balance sheet in the black.

The previous Federal government reduced the amount of excise it levies on fuel but even so, it costs $200 or more to fill the tank of an SUV. I suspect the (Morrison) government’s rare show of generosity in this instance has been overlooked.

What do to about fuel excise is just one of hundreds of issues the Albanese government has on its plate right now, including global issues beyond its control.

The World Bank says the global economy is entering what could become “a protracted period of feeble growth and elevated inflation”. The World Bank’s latest Global Economic Prospects report says the conditions raise the risk of stagflation, with potentially harmful consequences for middle and low-income economies alike.

Global growth is expected to slump from 5.7% in 2021 to 2.9% in 2022. This is well below the 4.1% anticipated in January.

“It is expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.”

As a result of the damage from the pandemic and the war, the World Bank expects level of per capita income in developing economies to be 5% below its pre-pandemic trend.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth,” World Bank President David Malpass said. “For many countries, recession will be hard to avoid.

The risk is arguably highest in the US, which has seen inflation run past 8% in recent times, the highest in 40 years. Inflation was reported last Friday at 8.5% in May, up from 8.3% in April. The rise was widely reported as a trigger for Tuesday’s massive sell-off in global share markets. As Kohler observed, the fear is that central banks will raise interest rates in a bid to dampen inflation. But it might not work.

Even though Australia’s wage growth has stalled during the decade the Coalition were in charge, we are still better off than the average US worker. The average hourly minimum wage in Australia, at $20.33, is well above the US ($7.25) although 25 States pay more than $10 an hour, with California best, at $15 an hour.

It’s no surprise there are grave concerns in the US for those who are out of work or struggling to get by on low wages (and tips).

As in Australia, a booming house market has made housing unaffordable for many Americans. The Guardian said that 49% of people surveyed by Pew Research said affordable housing was a big problem in their community.

They say charity starts at home, so here’s my tip to help someone on a $100 a week food budget.

Beef casserole: buy 1kg chuck steak (about $8.99) and put it in a slow cooker with assorted vegetables ($7) and herbs. Let it brew all day then cook some rice and lash out for a French bread stick. That’s more than enough for two meals and gives you time to shop for the next two-day budget meal. As for the $8 lettuce, tell them they’re dreaming.





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