The price of petrol could be slashed by the stroke of a pen – twice, once to stop the transfer of windfall profits to the multinational crude producers by breaking away from WPP, and the second to temporarily contain inflation due to increases in petrol prices. Or will the mortgage belt have to wear higher interest rates so that Captain Smirk can continue to claim he has no control ?

John Robb has suggested that the high cost of oil is because of the insecure situation in Iraq. He says it would be about $30 USD a barrel. even with the increasing demand, if Iraq’s output had not of dropped of by 1.6m barrels a day.

Not that it is a help long-term, there are plenty of other countries that are yet to do “a China”.

Why then do we have to submit to World Parity Pricing ? If the multinational producers and/or wholesalers will not sell petrol at a reasonable margin to their cost of production then suspend or if required de-license them. And if we don’t need the tax, why can’t the Government reduce or even remove fuel excise until sanity is restored to the price of oil ?

Petrol prices a factor “that no government can control” – I think not!

As for inflation, a little bit of money illusion is a handy thing – as an economist called Akerlof showed. A couple of percent a year means that people can get negative real wage falls without getting nominal real wage falls (which they really really hate and resist lilke hell!). Ditto but to a lesser extent real prices.

So those things that need to are freer to adjust down gradually, without a sticky floor underneath them which would be the case in lots of instances with zero inflation.

Other than that the commitment to price stability seems commonsense. Why would you want your unit of account to gain or lose value over time? If you could buy faster growth with a bit more inflation then well and good, but you can’t do that in the long term except perhaps in that very low band when getting to zero inflation (from 2%) would cost a lot and what would it get you?

In the words of Eric Idle on the cross “you come from nuffink and you’re going to nuffick. What have you lost? Naaahhhffink!

I graphed the RBAs M3 figures against the CPI at five year increments. There doesnt seem to be any correlation between the two. Is that significant?

Is inflation the result of rising prices or of too much money? Now that’s a big question! It can be both or either. If there’s too much money, then the ‘cost’ of things needn’t rise, but the ‘cost’ of things will rise measured by money (because money’s too easy come by there’s too much of it around chasing too few goods and services). Here there’s a fair bit of money around (though we’re making it harder to come by by raising rates. But costs are rising in an absolute sense also because the rising cost of commodities is flowing through the economy and its getting harder to get hold of skilled labour driving the cost of production up. But I’ve not spent lots of time pouring over the numbers so there may be others on the site who can say wiser things.

Is the current inflation just the increasing cost of products/services? or is the amount of money in Australia something to do with it too?

But the bulk of the skills shortages are in the tradables sector. More plausible to me is the rise in service prices is due to the rise in input costs from petrol.

The “cheap Chinese import” story can also be expressed as an equivalent “strong Aussie dollar” story. We are showing signs of incipient Dutch disease.