For now I'll continue my Wednesday pattern, where I'll cover some of the things that came to mind last week, but I won't provide a detailed analysis. These projects can be completely orthogonal. Australia's latest inflation data continues to confirm this tentative narrative – falling sharply from last month. Tomorrow I will analyze this in the context of the recent ECB paper, which breaks down the different factors driving global inflationary pressures. Today I consider the basis for the Australian Treasurer's statement that real wages are growing. Like many things in statistics, numbers can express almost anything you want through different ways of measuring and combining them. In a sense, the Treasurer is right. But when we use more careful methods to calculate the loss of purchasing power, he is wrong. If the Treasurer really wanted to be honest with the Australian people, he would admit it rather than try to score petty political points against a clueless opposition. I also considered the role the United States plays in the ongoing massacre of innocent people in Gaza. The United States could stop the conflict immediately, but the fact is that they do not show the poverty of the capitalist system in promoting overall human development. Finally there's some old folk music.
Australia's treasurer's spin to cover his tracks
Earlier yesterday, Australia's Treasurer tweeted (or X'ed) this statement:
To evaluate the accuracy of this statement, we must decide which frequency is most appropriate—do we focus on quarterly changes or annual changes?
Politicians will emphasize this frequency when it first appears and vice versa.
If inflation accelerates, annual estimates of the impact on real wages will lag quarterly, and vice versa.
Therefore, in periods of declining inflation, politicians will always seize on quarterly results because it creates the best possible impression (but may still be poor).
Below is the latest wage price index data combined with CPI for Q9 2023, with the bottom panel showing the annual percentage change in real WPI and the top panel showing the quarterly percentage change in real wages.
Using this deflator (CPI), the data published over the past two quarters did see positive growth in real wages, albeit a small one – 0.1%.
Real wages, calculated using the CPI deflator, were still 5.6% lower than in March 2021.
As I explain in this post, it also matters what deflator is used – AUSTRALIA – Real wages continue to fall, wage changes show RBA logic a ruse (August 16, 2023).
Basically, the ABS publishes the Consumer Price Index (CPI) and its Selected Cost of Living Index (SCLI), which is derived from expenditure data and varies according to the category (pensioners, employees, etc.) because These different groups have different spending patterns and are affected differently by price changes.
In the September 2023 quarter (the latest data), we saw:
1. Quarterly CPI changes by 1%.
2. CPI annual change is 5.3%
3. Quarterly employee SCLI changes by 2%.
4. Employee SCLI changes by 9% per year.
Therefore, when specific household spending patterns are more carefully modeled, the SLCI data show that cost-of-living pressures on “employee households” are more severe than described using generic CPI data.
So which indicator is most suitable for calculating the loss of purchasing power caused by rising prices?
The CPI is designed as a “macroeconomic indicator of household sector (consumer) price changes – inflation” and is used to “inform monetary policy”, while the SCLI is designed to more accurately capture changes in individual costs of living.
The ABS recently published a methodology paper (3 August 2023) – Selected cost of living index, Australian method – The conclusion is:
The cost of living index reflects changes over time in the purchasing power of a household's after-tax income. It measures the impact of price changes on households' out-of-pocket expenditures to obtain a fixed basket of consumer goods and services. On the other hand, the Australian Consumer Price Index (CPI) is designed to measure price inflation across the household sector, and conceptually it is not an ideal measure for assessing changes in the purchasing power of households' disposable income.
In other words, the SCLI represents a more reliable indicator of the differential impact of price changes on different household groups in the Australian population.
The ABS considers the “employee household SCLI” to be its preferred indicator, designed to more accurately capture changes in the cost of living for “households whose primary source of income is wages and salaries.”
This makes the treasurer's comments look completely different.
Last year, workers' related living costs increased by 9.0%, while wages increased by only 4.02%, and real wages fell sharply by 5%.
The chart below shows quarterly real wage changes using SCLI (top chart) and annual real wage changes using SCLI (bottom chart).
Quarterly or annual real wages using this measure have not grown since inflationary pressures emerged.
Based on SCLI deflator calculations, real wages are 8% lower than in March 2021.
I think this is a better indicator of the state of workers' purchasing power, and if the Treasurer really wanted to be honest with the Australian people, he would admit it rather than try to score paltry political points in front of an opposition that has no clue at all.
Climate change and Gaza
Mainstream (“progressive”) media cannot quite demand that progressive governments end the massacre in Gaza, and they skirt around the edges with articles that attract readers – like the Guardian article yesterday (January 9, 2023) – Emissions from Israel's Gaza war have 'huge' impact on climate disaster.
The article reports on recent research (not yet “peer reviewed”):
The planet-warming emissions produced in the first two months of the Gaza war exceeded the annual carbon footprint of more than 20 of the world's most climate-vulnerable countries, and the climate cost of Israel's military response in the first 60 days was equivalent to burning at least 150,000 tons of coal. .
The article pointed out that only a small number of factors (among many) were taken into account in the calculation, which means that the research results will significantly “underestimate” the actual impact.
A chart provides a “breakdown of carbon emissions generated in the first 60 days of the war”, showing:
Nearly half of total carbon dioxide emissions are caused by U.S. cargo planes transporting military supplies to Israel.
That number alone sums up the problem—if the U.S. government ceased to be an active partner in the murderous conduct of the IDF, it could stop the killings once and for all.
But of course, the U.S. economy is the primary beneficiary of the massacre of innocent Palestinians.
At the same time, some 23,000 Palestinians – “mostly women and children – were killed, and thousands more were buried under the rubble and presumed dead”.
“85% of the population has been forcibly displaced and faces life-threatening food and water shortages”.
American profiteering is at the heart of this.
Our current history shows that our civilization, based on the capitalist system of self-interest above all else, has collapsed.
Music – Four Strong Winds
During breaks, I sat outside in the sun and often played the ukulele.
I think ukuleles are a little limited, but you can play some really nice songs on them.
This is one of them.
The first version of this song I heard was—— Category 4 strong winds – As a young man in the early 1970s.
It was written by Canadian folk singer Ian Tyson, recorded with his then-wife Sylvia, and released in 1963.
They formed a folk duo—— Ian and Sylvia – They were popular in the 1960s, but their marriage broke up in the mid-1970s.
When I heard this song, the folk period was losing steam because the electric guitar was dominant.
In 1965, Bob Dylan switched to a Fender Stratocaster and was accompanied by the Butterfield Blues Band in Newport, which caused – dispute — among the die-hards.
I love Neil Young's 1978 version but always go back to the original version regularly.
The song has a really cute chord sequence – G Am DG, G Am D, G Am DG, C Am D.
After the beach, summer in South Gippsland!
That's enough for today!
(c) Copyright 2024 William Mitchell. all rights reserved.
