Lies, Lies and Central Banks

Lies, Lies and Central Banks

If you feel like a good laugh, take a moment to visit the website Reserve Bank of Australia’s website…

You’ll see in the right hand corner that it says inflation is currently 2.1%.

Actually it’s hard to tell how you’ll react. You’ll either have your hands on your stomach in hysterics — or be wiping the tears from your eyes. Only a bunch of bureaucrats could believe a figure so patently ridiculous.

I can say that because Adam Creighton over at The Australian crunched some numbers on this. He wanted to see what’s happened to the cost of living in Australia since 2007.

The Consumer Price Index is derived from 53,000 products and services. That’s across 87 different spending categories. The index is up 28% over the decade to 2017.

Adam dug a little deeper to see what’s happening to the things most of us spend money on. These are things we HAVE to spend money on, as opposed to holidays, new clothes and luxuries. Certainly, high heels aren’t on my buying list!

The scam of ‘low inflation’

Here’s a taste of what Adam found out…

  • Electricity up 114%
  • Water & gas up 90%
  • Medical services up 84%
  • Rents up 46%
  • Childcare up 38%

The headline inflation figure is a farce. And the list above doesn’t even include housing.

That’s conveniently left out altogether, should you care to buy a place. Real estate is broadly up 75%, but much more if you happen to live in Sydney or Melbourne. Local variations apply on that one.

Wages, meanwhile, have limped along since 2012.

But hey, you might say, what about the record run of Australia’s economy without a recession? We can pin that down to Australia’s large immigration intake. The headline GDP growth stays positive, but has little to do with improving anyone’s standard of living.

As you can see, that particular metric is demonstrably going down. What’s even more galling is the RBA flagged back in February that it was on the watch for ‘catch up’ wage hikes. That’s because wage growth might cause inflation to accelerate!

God forbid the average stiff cuts a break. Meanwhile, Australian housing goes to ever higher prices, but it’s never brought before us as ‘inflationary’, only as a possible ‘threat to stability’.

Adam, in his Australian piece, cites a calculation that puts inflation 25% higher EVERY YEAR since 1998 if it includes house prices.

Here’s the system exposed doing exactly what it’s designed to do: absolutely fleece the average punter for everything they’ve got.

Between taxes and inflation, the squeeze so hard we can hardly breathe. But the system we have has to have inflation and debt, or it breaks down.

The only blessing is the market finding ever more creative ways to lower costs as technology makes us more efficient. There’s plenty of abundance in the world, but there’s a right way and wrong way to go about getting our hands on it.

It shows why you simply can’t sit in cash for an extended period of time. Your purchasing power is shredded. Working for a standard wage only isn’t going to get you any place fast either.

You have to do something with your money, and that means looking to property or stocks…

This opportunity in the UK could fire-up 

If you think Australia’s expensive, it’s even worse in Britain. The median weekly wage is there is up just 13% since 2008, while the retail price index is up 28% — more than twice as much.

Now Brexit has taken a lot of stuffing out of the pound. The situation is getting even worse. UK inflation hit a four year high in April, according to the Financial Times.

Watch the Bank of England now. Last week the BoE came close to actually raising rates for the first time in years. This story got lost a bit with all the stuff about the Fed going on. Previously, the Bank said there may not be a rate raise in the UK until the end of 2019.

The reason I mention this is that any rate raise earlier than thought might prove a strong tailwind for the UK bank listed on the ASX. That’s CYBG [ASX:CYB]. Rising interest rates would boost its net interest income, all things being equal.

Big bank NAB spun off CYB. That’s why it trades in Australia. I’ve followed since it began. And to be fair, I thought it would be trading higher by now than it currently is.

It has been tracking along sideways for a while now. I still think it’s one to keep a sharp eye on to see if it starts moving up in sustained way. There’s potential for it to show some life in the near future. Consider it one for the watch list.

CYB’s mortgage book is growing, management is cutting costs and the UK economy is still ticking over nicely overall. Rising interest rates could be the kicker it needs to get moving.

However, there is one development that keeps moving faster and faster. It looks a long-term threat to the banks in general. If I’m right, it means a hidden agenda at work at the central banks.

But, as we we’ve seen, there’s plenty of those already. More tomorrow.

Best wishes,

Callum Newman
Editor, The Daily Reckoning Australia