Life on the West Island - The definition of insanity

Is rising inflation a problem for West Islanders? If you base this on a visit to a supermarket, the answer is an unequivocal yes. Despite the Bureau of Statistics reporting an annual inflation rate of around 7%, it is clear that grocery prices are rising at a much faster rate. We have noticed two clear trends causing this – the obvious increase in shelf prices, and often a less prominent decrease in package sizes.

There are plenty of examples, which include a steady reduction in the sizes of cans, biscuit packs and individual unit sizes across the board – including the dimensions of chocolate bars, smaller sizes for packets of chips, reductions in cereal packs and smaller volumes in packaged soups. A specific example is in packs of wrapped lollies. Packages of 250g sweets that previously sold for $5.00 have been reduced to 160g priced at $4.25. This equates to a 21% increase in a single year – three times the stated rate of price inflation. Even the prices of products which do not come in reduced packs have risen rapidly. For example, the hand soap which we bought regularly for $6.00 has gone up to $7.20, or a 20% rise.

This trend can be found across the board in frozen goods, laundry needs and dairy products. Cheese has mostly doubled in price in the last year, and many of the “economy” packs of cheese slices have disappeared from supermarket shelves. Savoury biscuits which were normally $2.50 now go for $3.95. Yesterday we bought one small supermarket bag of essentials and came home with 50 cents change out of $100. No doubt prices in Norfolk Island, inflated by freight costs, are much higher.

In short, it appears that manufacturers and retailers are taking advantage of the current media frenzy about inflation to increase their margins and their profits. Meanwhile, the Reserve Bank board continues to pile cost of living pain on home buyers and renters with 12 consecutive rises in interest rates, which seem to have had almost no impact on inflation. Why do they go on doing the same thing over and over and expect a different outcome? Could they all be insane, as Einstein predicted?

The answer is a little more complex, but is centred on the current economic orthodoxy that inflation is bad and must be controlled – and that it is largely caused by wage increases; that productivity must be lifted before any wage rises are given; that growth must be achieved at any cost; and that unemployment must rise to prevent the economy from “overheating.” None of these is necessarily true, but their blind pursuit by the RBA and big business could be pushing the West Island economy into an unnecessary recession.

Economic journalist Maeve McGregor explained it like this:

Theirs is an approach, it bears repeating, underpinned by the enduring neoliberal idea that the only way to cool the economy and slow spending is to squeeze borrowers and mercilessly shove thousands upon thousands into Centrelink’s benighted unemployment queues. Against this thorny backdrop, any prospect of meaningful wage rises to compensate for high prices likewise fades as the spectre of unemployment cows the remaining workforce of low- and middle-income earners into accepting real wage cuts.

But are wage rises causing the inflation problem? This week the OECD found that there was another cause, not wages - over 60% of the West Island’s recent inflation has been generated by the massive increase in corporate profits. On top of this, market exploitation by energy companies and higher mortgage payment and rents account for almost all of the rest. Wage growth had made an “insignificant” contribution. Research by Australia Institute had previously pointed out these facts, but they were discounted by big business and the RBA. However, the Institute stuck by its guns:

While the CEO of NAB is out there warning that an increase in the minimum wage will worsen inflation, and the RBA has presided over multiple interest rate rises, the last thing big business wants is for us to shine a spotlight on the massive profits the banks, airlines, mining companies and supermarkets are raking in during this cost-of-living crisis.

Senior journalist Bernard Keane agreed, especially in relation to mining companies:

The core argument of the RBA et al in wishing the problem away is that you have to ignore mining and energy profits because everyone knows that’s a special case — mining profits have inflated the overall profit share of income versus the wage share of income, and energy prices have generated enormous profits, but only due to Putin and the Ukraine war. This has the effect of removing the biggest demonstration of exactly the point your opponents are making — that a highly concentrated industry is exploiting market power to generate massive profits.

Economist Michael Pascoe has long criticised the Reserve Bank’s constant rate rises, and doubts its motives in pursuing its “insane” course:

The RBA’s weak statement and harsh interest rate decision on Tuesday has brought forth deserved snark, with nothing snarkier than asking if the RBA board is acting out of spite or has it simply lost touch with reality?

Maeve McGregor drew the obvious conclusions:

In truth, there are only two reasons beyond institutional and personal defensiveness or even incompetence that explain (Reserve Bank Governor) Lowe’s conduct. One is he faithfully believes he needs to be seen to be acting on inflation lest a dangerous mentality that inflation is here to stay sets in. The alternative is that his biased worldview, bending as it does in favour of business and profits over people, sees him consciously or subliminally elevate those interests above all others as a matter of course. Perhaps it’s a confused blend of all of the above.

Or perhaps it’s just Einstein’s maxim: Insanity is doing the same thing over and over and expecting different results!