June is too soon for an RBA rate rise

Name:         CHAN, Sin Fong
Subject:      June is too soon for an RBA rate rise
Visit Time:  11/05/2011 6:04 PM

Remark:
Predictions by Glenn Stevens and his team at RBA are far from satisfactory. Either the economic models used or the way the results produced by the models have been interpreted need to undergo vigorous challenge.

The trilogy of negative demand, as I called it, is a signal for heading towards a recession. This may sound farfetched, naïve and ill-founded, but a rationalist will see the wisdom of this doomsday prediction. The trilogy of negative demands is real properties, cars and household goods including fashions. These three categories of items are in descending sequence in terms of average value. In recent months, we witness the trilogy of negative demands are taking place.

I have written in many blogs and newspaper comments about my predictions, a lot more accurate than what RBA has been predicting. Using dollar value as the key element in prediction is inadequate. The total quantity demand must be taken into consideration for normalisation.

CPI increase, unfortunately, always targets at increase in price which can be due to real reason and artificial manipulation. If quantity demand is increased, causing shortage of supply and thus pushing up the price, then there is room to call for increase in interest rate to dampen the demand. However, it is irrational to increase interest rate because electricity charges, water rates, local petrol prices have gone up, and that the quantity demand of these utilities or items is in fact unchanged or decreased. In short, the total dollar increases bear no relation to the demand curves.

Read more: http://sinfongchaneconomy.blogspot.com/2011/05/why-june-is-too-soon-for-rba-rate-rise.html

RBA and interest rate increase

Name:        CHAN, Sin Fong

Subject:     RBA and Interest Rate Increase

Visit Time: 29/05/2008 12:41 AM

Remark:

One of the key determining parameter used by the Reserved Bank of Australia (RBA) to increase interest rate is the inflation rate, which is derived from the consumer price index (CPI). The CPI is calculated based on a "basket of goods". The rising price of petrol has a flow-on effect on other items such as utility, transport, foods, wages, etc. These items, plus petrol are all included in the basket of goods. Using prices to determine inflation rate is rather illogical and nonsensical.

The higher prices, through no fault of the consumers, should not be considered as inflation. Redefinition of the word inflation based on increase in quantity consumed instead of money expended seems to be fairer and equitable.

The action taken by the RBA Board to increase interest rates for the past few months may help to dampen demand in many sectors, but the longer term impact may lead to business closure, loss of employment, rise in marriage / family breakup, mental and psychological suffering, theft and burglary. In addition to its main responsibility in determining monetary policy, and maintaining financial system stability, the RBA should also take on board social consciousness.

The methodology employed by the Reserved Bank of Australia’s (RBA) to increase interest rate can aptly be described by the acronym GIGO – garbage-in-garbage-out.