In December last year the Governor of the Bank of England, Andrew Bailey, convened a virtual summit of Central Bank Governors to discuss ... diversity and inclusion. Even before Christmas it was clear that inflation around the world was out of control. I wrote an article in this paper in late November outlining my concerns.
The central job of central banks is to control inflation but they have been distracted in recent years on woke, trendy fads like diversity, pride and climate change.
We are all about to pay the price for their distraction. This week the Reserve Bank of Australia increased interest rates by the largest amount in 20 years. The RBA admitted that even this radical action will not get inflation under control. Prices will go higher, as will interest rates, over coming months.
That is going to be tough for Australian families that are already struggling. There is no spoonful of sugar that will make this medicine go down easier. We need to make sure that we do not instead make a bad situation worse.
Inflation occurs because there is too much money chasing too few goods. The most direct thing the government can do is to restrain spending. If we spend more money on cost of living relief we will push inflation higher and make things worse.
The other thing that can be done is to encourage the production of more goods. The risk now is that high energy prices will create the kind of stagflation that we experienced in the 1970s. Stagflation is the simultaneous occurrence of high inflation and low economic growth.
To avoid this worst of all worlds we need to unleash Australia's energy resources so that we can help spur economic growth and take some pressure off inflation.
We have abundant supplies of coal, gas and uranium but we have adopted the nonsensical policy that we are ok to sell our resources to other countries but we won't use them ourselves. It is time for the war on coal and gas to end before it is too late.
We can bring energy prices down if we expand our coal and gas production for our needs before others. We should release more gas permit areas for domestic use. And, we should take the red tape off coal mine expansions so that our own power stations have sufficient coal to run. We have the absurd situation at the moment where we are the world's largest exporter of coal yet some of our own power stations do not have enough coal.
We should also build a high efficiency, low emission coal fired power station. This technology is proven and can be bought off the shelf. We must lose our obsession with technologies that sound good but have not been proven to work anywhere in the world. Think hydrogen, large-scale batteries, pumped hydro and small scale nuclear reactors.
Even more than diversity conferences, our central banks have been obsessed with the siren song of climate change. The European Central Bank has launched a Climate Change Centre, the Bank of England has included climate change in its policy remit and the US Federal Reserve has launched two committees on climate change. Here in Australia the Australian Prudential Regulation Authority has launched a Climate Vulnerability Assessment tool that will seek to regulate bank lending on a climate basis.
These policies have not only distracted our central banks from their core task of controlling inflation they have added to inflationary pressures by denying finance to energy production. The sooner our central banks stick to their day job, the better it will be for all of us.