It's like the pandemic never happened

Delivered on By Justin Pyvis

Good morning! We trust everyone had a relaxing ‘Straya day holiday. Unfortunately for those in NSW there was some bad news, after it was announced that existing restrictions – e.g. indoor mask mandates, no singing and dancing and density limits at pubs – with be with you for another month.

Premier Dominic Perrottet said the extension was “proportionate to taking a cautious approach as we move through”, with daily case number now well below half their peak – but that could quickly change, with schools due to reopen on 1 February.

In more positive news, 15-time Grand Slam winning wheelchair tennis star Dylan Alcott was named Australian of the year, joking as the crowd stood up to applaud him that “standing ovations are one of the most ironic things in the world, by the way. But I’ll take them, without a doubt”. 👏

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



Iron ore (t)









Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 was down -0.5%, quickly erasing its early gains following a very hawkish press conference by Fed chair Jerome Powell, where he warned that “I think there’s quite a bit of room to raise interest rates without threatening the labor market”.

Powell continued, adding that the “risks are still to the upside in the views of most FOMC participants, and certainly in my view as well. There’s a risk that the high inflation we are seeing will be prolonged. There’s a risk that it will move even higher”.

So no lift-off yet but a larger than expected 50 basis point rise in March is definitely still in play.

Locally, the ASX200 was closed for the Australia Day holiday which was timed well given it shed a mammoth -2.49% on Tuesday, its second largest daily loss of the year!

Food for thought

Prices have risen so quickly it's like the pandemic never happened.
Prices have risen so quickly it's like the pandemic never happened. Source

Australian consumer prices jumped 3.5% in the December quarter 2021 (1.3% from the prior quarter), smashing expectations and heaping pressure on the Reserve Bank of Australia (RBA) to start tightening monetary policy sooner rather than later. As the chart above shows, the RBA has well and truly made up for the brief bout of deflation experienced during the height of the pandemic.

According to the ABS the increase was “broad-based”, although as one might expect given the lockdowns during September and October goods inflation (+4.3%, the most since 2008) comfortably outpaced services (+2.3%).

Anyone watching the housing market won’t be surprised by the fact that the cost to build a dwelling was +7.5% higher than a year ago, which officially makes it “two quarters of the largest rise in new dwelling prices since September 2000, following the introduction of the GST”.

Mission accomplished, right? Since the pandemic began, the RBA (monetary easing) and various levels of government enacted debt-financed policies (e.g. HomeBuilder) to stimulate housing construction. Given supply is far less flexible than demand – they can’t magically conjure up a brickie like they can a dollar – prices have to rise.

It’s not like there’s much slack left in the labour market to help cater to some of the demand, either, with unemployment at a 13-year low and the employment to population ratio at an all-time high.

The big question now is how it’s all going to be unwound. To the extent that demand has merely been pulled forward by stimulus, there will be a cliff once the pipeline of construction and $A260 billion in savings households have accumulated since the pandemic began runs dry.

There’s also a risk that the increasingly rapid inflation caused by the RBA’s monetisation of government debt worth around 15% of GDP will require it to run a tighter than otherwise monetary policy, which will naturally cool certain asset markets such as housing at the same time as the fiscal impulse reverses (Australian governments will have racked up $A2 trillion in debt by 2024-25, double pre-pandemic levels).

The RBA meets this coming Tuesday where it will no doubt opine on the latest inflation figures, as well as tell us whether it plans to continue buying government bonds (quantitative easing), a programme it should have terminated months ago.

Bits and bytes

😀 The weekly ANZ-Roy Morgan consumer confidence index increased 2.2% in the third week of January, although “inflation expectations recorded a 0.1ppt rise to match the recent high of 5% reached in December”.

😟 The monthly NAB business confidence survey “fell sharply in December as the spread of the Omicron variant threatened to dampen the economy’s post-lockdown momentum… [with] both reported labour and purchase cost growth near record levels”.

📈 Singapore’s central bank tightened monetary policy out of cycle “just a day after data showed prices in the city-state climbed in December by the fastest pace in nearly eight years”.

🙊 Asked by a journalist “Do you think inflation is a political liability in the midterms?”, US President Joe Biden responded with “It’s a great asset—more inflation. What a stupid son of a bitch.”

🏡 US house prices surged 18.8% from a year ago in November, a slight deceleration from October’s 19.0% but was still the sixth-highest reading in the 34 years.

🚢 South Korea’s economy hit an 11-year high growth rate of 4.0% in 2021 “on the back of strong exports and corporate investments”.

🗳️ According to the first Guardian Essential poll of 2022, ScoMo’s approval rating was unchanged from December (46%) while his disapproval rating was up two points, also to 46%. He remains preferred PM (42%) versus opposition leader Anthony Albanese (39%).

👏 “The Aboriginal Flag copyright has been transferred to the Commonwealth & all Australians can use the Flag digitally or in any other medium without having to ask for permission or pay a fee.”

🌋 Visualising the Tongan eruption, which was comparable to the 1991 Pinatubo eruption in the Philippines and is one of largest of the satellite era.

📉 The International Monetary Fund cuts its forecast for global growth to 4.4% in 2022 (down from 4.9%), due to the Omicron surge, supply chain disruptions and higher inflation.