Today I want to share a graph based on yesterday's data release of Australia's external position. I've inverted it to represent that Australia's foreign 'investment' is on the liabilities side of the balance sheet, not the asset side.
I can produce the same 'Excess price growth' charts for both non-tradables and services indexes of the CPI. They indicate simply that Australia's external position is allowing a huge shift in relative prices - housing and other locally produced goods seems expensive simply because imported goods are so cheap.
Ultimately this shift is a policy choice, since at any point we could intervene in currency markets (given the political will) to attract more diverse local investment.
The lesson here is that any whinge about prices and incomes in Australia must look at the big picture, which has been driven to a large extend by our rather backwards attitude to foreign debt and laissez faire approach to currency markets. Anything made locally is expensive even to Aussies. It is a long road back if we want to turn these patterns around.
PS. I'm trying a new online graphing tool Datawrapper that I see Greg Jericho using to great effect. Unfortunately it's not playing too nice today so only a single graph as a preview of what is to come.