How Covid lockdowns caused Australia’s inflation mess

All that extra cash sloshing around the economy making things more expensive wouldn’t be there if it was not for panicked politicians paying us to stay locked up, writes James Morrow.

Inflation is finally here – or at least official, as anyone who has watched the price of a half-kilo of supermarket mince creep towards ten dollars in recent months will tell you.

Since we are in an election season the obvious question is, who do we blame for it?

Prime Minister Scott Morrison is obviously copping the most heat for this, not all of it unjustified.

Despite claims by some to the contrary, it’s simply impossible to pump hundreds of billions of dollars of stimulus into the economy and not push prices higher eventually.

The more cash there is sloshing around competing to buy the same goods – whether loaves of bread or investment properties – the more cash it will take to buy any of those things.

Australia's annual inflation rate hit 5.1 per cent in the March quarter. Picture: Saeed Khan / AFP

Simple, as the Russian meerkats say.

Yet if the economics are easy, the politics are more complex.

Why was so much cash pumped into the economy?

Well, there things get more political.

Rising oil prices, fighting in Ukraine, supply chain crunches in China all play a part.

But it’s more than an even bet that anyone having a poke at the government over inflation also was a keen supporter both of Covid lockdowns and the printing of ever more money to pay for them.

Josh Frydenberg visits the Barton cafe in Hawthorn to talk about businesses after JobKeeper. Picture: NCA NewsWire/ David Crosling

The fact is that Australia’s money supply increased by more than 20 per cent during the pandemic, something that was cheered on by left and right.

Indeed the left not only applauded a centre-right government printing money hand over fist, they were actually disappointed when the ruler was run over JobKeeper and it was found to have cost tens of billions of dollars less than expected.

So what is the point of this?

Well, in hindsight we now know that lockdowns were terrible science (and in fact we knew that before, as no pandemic emergency plans ever anticipated shutting down society for a virus like Covid).

Former NSW Premier Gladys Berejiklian. Picture: Ryan Pierse/Getty Images

Studies that have compared the Covid death rates of various US states and European nations have found very little difference in their overall pandemic mortality.

Don’t believe me? Just have a look at how Sweden did versus the UK, or Florida versus New York.

Yet they became irresistible to both sides of politics, cheered on by many in the media who whipped up fear and demanded premiers do ever more to crush the virus.

Thankfully we are out of that mentality now even though we are living with case and death rates that would have seen us superglued into our units Shanghai-style six months ago.

Now, though, we’re paying the price with an inflationary hangover that, if we are not careful, will tip us into recession and stagflation – that unhappy situation when prices go up but growth keeps muddling along.

Thanks, in no small part, to letting panic overtake our politics in the pandemic.