The system working as it was designed #1

This week's  Consumer Price Index (CPI) release showed Australian inflation at 7% over the past 12 months. Which really means:

  • If we had the money, inclination and lack of sense to go out and shop for a government prescribed list of goods and services, comprising most anything one could buy - lettuce, toilet paper, paying someone to do our taxes, coffee, tobacco, taxi's and buses, and so on.
  • And we were to do all of that all in one day and put it in a very large basket.
  • Our basket would cost us 7% more than it would have cost us to buy all in one day, a year ago.

In practice you or I would have different baskets - you may not believe in paying others to do your taxes, or you may have lots of pet guinea pigs that love lettuce. But, there are some things we all need. Even though you and I might be very different people, with different spending habits, we both need:

  • A place to live,
  • Energy or electricity to heat our stoves and hot water and provide light,
  • Food to eat;
  • And we especially need the people we rely on to produce our food to have energy and fuel to power their machinery and trucks that get the food to the stores so we can buy it.

Now for the good, bad and ugly.

  • Good: the rate of price rises is slowing! CPI is down from it's peak of 7.8% late last year.
  • Bad: prices of things we all need - housing and energy - are rising the fastest. Housing price growth in the last year was +9.8%, energy prices are +26.2% (gas and household fuel), and +15.5% (electricity), from Deloitte Access Economics (DAE).
  • Ugly: further rises in rental and energy prices are expected according to DAE and any real estate agency's marketing team (they represent landlords).

Our problem? People aren't losing their jobs. And when people don't lose their jobs, they keep getting predictable annual wage increases, and they keep spending money, so we still have inflation. When people don't lose their jobs, they don't give up their rentals to move back in with family or friends, which means we still have a lack of supply of houses people want to live in, in places they want to live, and so we still have an affordable housing problem.

It takes some time for the effects to kick in. I should say people aren't losing their jobs, yet. Some more people will no longer be employed in the next 2 years, according to this forecast supplied by our central bank:

Which neatly reflects the inverse of this inflation forecast:

Alas, we have the economic system working as it was designed.

What's great about the system is that it's entirely made up. What would we do differently, if we took the future as our starting point? How would our economic systems change, in a world of:

  • Low cost, affordable renewable energy available to all
  • Generative AI
  • Regenerative agriculture
  • Closed loop production & circular economies

The only call to action is contemplation, and if you feel like you need to take action, we recommend reading wait, what should I do?