May 24th 2008

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Articles from this issue:

COVER STORY: Rudd Budget targets 'middle-class' welfare

EDITORIAL: 'Whom the gods wish to destroy...'

LABOUR MARKET: Post-school education and training: a national crisis

ECONOMIC AFFAIRS: Oil imports threaten to blow out foreign debt

ENERGY: Germany's rapid development of renewable energy

SCHOOLS: Dubious deal offered to pupils' parents / Faith schools' autonomy defended

CIVIL LIBERTIES: Political correctness suppresses free speech

ABORTION: Why abortion should remain a crime

PUBLIC AFFAIRS: The indispensable role of government

DEFENCE: Lest we forget our duty of care to servicemen

OLYMPIC GAMES: Clean-up or purges? Beijing prepares for the Games

INTERNATIONAL POLITICS: Is the United Nations beyond repair?

AS THE WORLD TURNS: Westerners acquiescing to creeping sharia / Oil fuelling world's conflicts

OPINION: Why we should encourage creation of new Australian states

Plight of young home-buyers (letter)

In defence of global warming (letter)

Wrong way to tackle inflation (letter)

US presidential elections (letter)

Life, not euthanasia (letter)

BOOKS: THE CHURCH AND THE WORLD: Essays Catholic and Contemporary, by John Haldane

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Wrong way to tackle inflation (letter)

by Chris Hilder

News Weekly, May 24, 2008

What sort of economic wonderland are the Federal Government and Reserve Bank inhabiting?

Unless I am missing something, the main driver of inflation is higher oil prices, which increase costs in virtually every industry in the economy. A secondary driver is higher food costs flowing from the drought.

Both of these drivers (putting creative alternatives to one side) are outside of Australia's control and not the result of an overheated economy; so why do the Federal Government and Reserve Bank think that a larger budget surplus and higher interest rates, respectively, will do anything to contain inflation?

The biggest danger from external cost-driven inflation is the risk of its precipitating a wage-price spiral that would lead Australia into stagflation.

It seems to me that the one way to reduce this risk would be to compensate wage-earners by maintaining their purchasing power. The Federal Government can do this by reducing taxes (both individually and on company costs), and the Reserve Bank can support it by lowering official interest rates.

Such an approach may also dampen pressure for wage increases in those sectors actually suffering skills shortages. So why are both bodies taking the opposite approach?

And just to top off the headlong rush to stagflation, why create a triple and quadruple whammy of inflation shocks by increasing energy costs via decarbonisation ideology and power industry sales to the private sector?

(Mr) Chris Hilder,
Queanbeyan, NSW

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