Rampaging Bananas

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Yesterday we asked who was in charge around here. Oil? Gold? The Dow? The Reserve Bank? John Howard? It turns out none of them are! It’s the bananas!

Banana DancingAccording to Treasurer Peter Costello, the bananas are running the joint, or running away with the joint, or causing a surge inflation. Does this make Australia a banana republic? Maybe not. Maybe it’s just a banana insurgency! Trying to explain the persistence of rising prices, the Treasurer said, “The effect of increases in fruit and vegetables added around about a third of that increase. Fruit and vegetables rose 20.5 per cent, and that was led by bananas again.”

If only banana prices would fall then perhaps housing would become more affordable to first-time Australian home-buyers. Somehow we don’t think members of the Reserve Bank will be thinking about fruit as they set interest rate policy for this year and next. As it stands, the cash rate is 6%, having been raised seven times in a row since May of 2002. The last time the cash rate was this high was all the way back at the dawn of the tech boom, in January of 1997 (a chart showing the cash rate back to 1993 is below).

RBA Cash Rate Changes

2 Aug 2006 +0.25 6.00
3 May 2006 +0.25 5.75
2 Mar 2005 +0.25 5.50
3 Dec 2003 +0.25 5.25
5 Nov 2003 +0.25 5.00
5 June 2002 +0.25 4.75
8 May 2002 +0.25 4.50
5 Dec 2001 -0.25 4.25
3 Oct 2001 -0.25 4.50
5 Sep 2001 -0.25 4.75
4 Apr 2001
-0.50
5.00
7 Mar 2001 -0.25 5.50
7 Feb 2001 -0.50
5.75
2 Aug 2000 +0.25
6.25
3 May 2000
+0.25
6.00
5 Apr 2000
+0.25
5.75
2 Feb 2000
+0.50
5.50
3 Nov 1999
+0.25
5.00
2 Dec 1998
-0.25
4.75
30 Jul 1997
-0.50
5.00
23 May 1997
-0.50
5.50
11 Dec 1996
-0.50
6.00
6 Nov 1996
-0.50
6.50
31 Jul 1996
-0.50
7.00
14 Dec 1994
+1.00
7.50
24 Oct 1994
+1.00
6.50
17 Aug 1994
+0.75
5.50
30 Jul 1993
-0.50
4.75
Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. […] 1. This is not just a pause, but the end of all rate hikes. 2. In the absence of an overheating economy, inflation is yesterday’s issue. 3. Steady or lower interest rates will boost the stock market. 4. As the Fed no longer tightens, the possibility of a hard landing can be dismissed. 5. Abundant liquidity continues to underpin the markets.Treating bad economic news as good for the financial markets, Wall Street is running wild with more aggressive speculation. “The world economy is on track to grow at a 5.1% rate this year, but the risk of a severe global slowdown in 2007 is stronger than at any time since the September 2001 terror attacks on the United States,” said the International Monetary Fund in a report to finance ministers, mentioning two possible triggers: a sharp slowdown in the U.S. housing market or surging inflationary expectations that would force central banks to raise interest rates. […]

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