Amid its anti-worker screed, the RBA admits businesses are driving inflation

It’s almost as if the big business-dominated Reserve Bank board and its chair Michele Bullock knows what’s really happening in the economy, but are too self-interested and ideological to let go of their obsession with blaming workers for inflation.

Yesterday the RBA released the minutes of its November meeting at which it decided to punish ordinary households (and reward asset-rich retirees) with another interest rate rise. Buried in there was something close to an admission that it was business arrogance and greed that was behind inflation.

First:

Members also observed that, while longer term inflation expectations remained broadly anchored, there had been signs of a slight upward drift in some financial market measures of inflation expectations.

As any inflation hawk will tell you, expectations are the name of the game, and central banks are uniformly desperate to prevent a rise in inflationary expectations in the community. Not that the RBA has a meaningful way of accurately measuring inflationary expectations though; it appears happy to outsource that to financial markets.

The minutes went on:

Furthermore, members noted growing signs of a mindset among businesses that any cost increases could be passed on to consumers.

Really? It’s November 2023. Where has the RBA been for the past 18 months as businesses have maintained and increased profit margins by passing on external, supply-side cost increases to consumers? (Well, it’s spent it in an increasingly embarrassing denialism about the role of greedy businesses in pushing up inflation — despite its central banking colleagues in the US and Europe and institutions such as the OECD and the International Monetary Fund detailing the precise role of profits in the current bout of inflation.)

But it’s the nearest the RBA has come to admitting that business’ desire to protect or fatten profit margins and earnings (and protect their pay and bonuses, and give shareholders buybacks and limit dividend cuts) is playing a major role in boosting inflation — and expectations of higher inflation — in future months or years.

And what’s the RBA’s response to what it finally, belatedly acknowledges is driving inflation? Is it to call out the big business mates of the RBA board members? Is it to call on the government to more aggressively pursue regulatory measures such as price monitoring, to expedite measures to toughen competition laws, even to consider price caps across a greater range of industries to combat profiteering? All of these things are within its remit, and it’s made similar calls previously on fiscal policy and wages policy.

Nope. Its response is: “Members assessed that tightening monetary policy at this meeting would help to mitigate the risk of an unwelcome rise in inflation expectations.”

Yep, ignore the corporations that are boosting their profits under the cover of inflation and punish their victims instead. What else would you expect from a central bank dominated by neoliberal ideology and big business representatives?

The minutes also identify growth in unit labour costs as a worrying sign of “weak productivity outcomes”, something Bullock also mentioned at an ASIC conference yesterday. The RBA has been complaining for months about wages growth without productivity.

Curiously, the minutes specifically stated: “The outlook for wages growth had been revised a little lower in the near term based on the signal from timely indicators. Liaison with firms suggested that there had been a moderation in wages growth in some jobs and industries, such as business services and construction.” But almost as if Bullock didn’t want to let such facts get in the way of a good story, the governor complained about wages growth of 4% at the conference. So which are we to believe, Bullock or the minutes?

The obsession with productivity is despite the fact that Australian workers are working longer hours than ever and that the chief impediment to productivity growth is a sluggish economy — due to the RBA’s rate rises — that means those extra hours aren’t translating into comparably higher output.

There are also secular factors such as the shift to services, which are much harder to measure for productivity, and especially health and social care, a sector that has grown by a fifth in the past half-decade. What do Bullock and the RBA board want to see in the biggest employment sector of the economy? Fewer nurses and doctors per patient? Fewer aged care workers per senior? Home care workers cramming more elderly clients into each day? Ending mandated staff-child ratios in childcare?

That would lift productivity substantially. Is that what Bullock wants? It’s easy to pontificate about productivity when you’re a comfortable business figure gifted a Reserve Bank board spot, or a central banker on nearly $1 million a year and don’t have to worry about what productivity really means in the sectors most of us depend on for basic services.