Excellent article! There are plenty of reasons, as Angus mentions, why the inflation will not kick off. My view is that all this extra liquidity has a new home, like what’s happening now, it gets sucked up into “asset prices” / equities / Savings in bank. So they do not come into play in the inflationary pool. This is a “behavioural” outcome. If the behaviour changes The outcome will change I.e if for some reason society at large does not think these assets are the right place for their cash & they’d rather spend it, then all of a sudden we have Excessive inflation. Thoughts ?
Hi Angus. I am with you on the disconnect in Australian bond yield pricing. What I'm wondering is whether you think it is because global investors think Australian economic growth is in a much better position, or if it is because global investors think that the RBA isn't committed to its inflation target and so won't be as aggressive as other central banks?
Sanj thats the experience from QE 1,2,3, money flows into basket of assets. Be that bonds, stocks, property, vintage cars artwork etc. It doesnt go into basket of goods. Dont under estimate the power of over leverage. People seem to forget about what happened to Japan.
Damien I think its a combination of both. That table says everything. Think about asset liability matchers looking for long dated assets!! 30yr bunds negative. Australia also looks comparatively much better economically so that is probably a factor as well. I think the RBA will be forced to respond. They always seem to be late to the party....lets not forget they waited 2 weeks in March before responding to the covid calamity. That felt like an eternity at the time given we were getting daily updates from other G20 central banks