The word “gaslighting” is wildly overused these days. But there’s no other word for what the Reserve Bank and its governor Philip Lowe are doing to Australian households on wages.
After the bank’s decision yesterday to lift interest rates by another 0.25 points to address Australia’s — by international standards moderate — inflation problem, Lowe released his normal post-meeting statement again explaining his determination to fight inflation. And he said this about wages:
Wages growth is continuing to pick up from the low rates of recent years, although it remains lower than in many other advanced economies. A further pick-up is expected due to the tight labour market and higher inflation. Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.
This was the first time Lowe has mentioned a wages-prices spiral in the current cycle of rate tightening — in language implying it was a real threat to be guarded against. He went on to claim “people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic.”
What fantasy world, what alternate Australia, are Lowe and his executives and the RBA board living in? It was an extraordinary and scary admission of just how out of touch the architects of monetary policy really are from the lived experience of working Australians.
Wages have been stagnant for a decade in Australia, and they entered the current bout of rising inflation with real wages having barely shifted since 2013. Indeed, the RBA used to be one of the bodies that kept pointing that out.
Real wages then fell 3.5% in the year to June. They’re forecast to fall another 2% this financial year — if the government’s Pollyannaish wage growth forecasts come true. That means households will have lost more than one dollar in every 20 — hardly the “gaining higher wages” Lowe is talking about. But the RBA appears completely uninterested. And to now start talking about a wages-prices spiral is an insult to every household doing it tough with lower real incomes and higher interest rates.
In a 2000-word speech at the RBA board dinner last night, Lowe went on:
At our meeting today we discussed the damage that high inflation does to people; it is a scourge. High inflation devalues your savings. It worsens inequality in our society and it undermines our living standards. It hurts us all by impairing the functioning of our economy. It is for these reasons that the Reserve Bank Board will make sure that this episode of high inflation is only temporary.
Did he mention wages at all? Did he reflect on what wage stagnation and then real wage cuts have done to households? He mentioned wages precisely once in the entire speech.
Lowe and his fellow board members opining about worsening inequality and living standards and warning of a wages-prices spiral, while apparently oblivious to wages collapsing, is exactly the stereotype that populists love to paint of economic policymakers — out-of-touch elites.
Maybe during its deliberations yesterday Lowe and the board thought they were back in early 2013, when the RBA lifted the cash rate 0.25% to 2.85%. Inflation was 2.5%, the Aussie dollar was trading above parity and crushing the life out of the economy, while the wage price index was 3.4% — a level unseen ever since.
Now WPI is 2.6%, with the RBA and Treasury insisting it will go higher, rapidly.
This is where the gaslighting comes in. Having once lamented wages growth with a two in front of it, Lowe now wants us to believe WPI in the high twos is good wages growth and workers should be grateful if they can get 3%. Which means continuing real wage cuts due to externally generated supply factors and businesses using inflation as a cover to increase profits.
And it will be worse for low-paid workers. We know that, without government intervention, low-paid workers will have even lower wage growth outcomes than the rest of us. But that’s one inequality that apparently doesn’t worry Lowe.
As for when households might see decent enough real wages growth to recoup the level of income they were receiving in mid-2021, they’ll probably have to wait until the 2030s. It’s a comforting thought, isn’t it, that you might be a decade older before you have as much spending power as you did last year. Be grateful.
If only workers could live in Lowe’s fantasy land where wages could keep up with prices. They might stand a chance of not going backwards quite so quickly.
“ due to externally generated supply factors and businesses using inflation as a cover to increase profits.”
That’s it in a nutshell!
Why does the RBA refuse to take on board that reality?
Because the Reserve Bank are coalition appointees and supporters. It wold be interesting to dig deeper and see how many of them have shares or are in some way vested in the fossil fuel or property industries.
Apparently, uniquely among central banks, ours has only business appointees on it, rather than economists and community representatives.
Not sure where you obtained that “information” but that would be incorrect. I suggest that you look at the US Federal Reserve and other Central Banks.
The RBA employs Economists who review and make recommendations to the Board.
Community Representatives? Would love to know which Central Banks have these.
For senior execs and boards wages are spiraling out of control, unfortunately this is not the group that the RBA seem concerned about.
Of course not, they are an insignificant factor in the economics of the everyday. It’s politicians who should care about the 0.1% because of the moral questions around fairness, and that’s why politicians should be the ones weighing in on why the RBA approach is just another way to turn the screws on society’s poor.
Or at least the RBA should come out and say “our approach to economic management requires the poor suffer”, which should give them the same standing as the major parties when they announce a similar thing involving anyone on Centrelink payments.
The RBA Governor, is out of touch with reality…. very disturbing that we have a dithering fool, wallowing around and spinning his economic ‘La La land’ rhetoric!!
I hope someone on the RBA board subscribes to Crikey and reads this article.
It’s grounds for instant dismissal.
Not if they’re mates or Lachlan.
Lowe sees whatever he has to see to justify his position as RBA chief.
It’s an overpaid role equivalent to what a railway worker used to do in a rail yard by pulling one lever at the appropriate time.
Lowe pulled his one lever too late because he failed to see the oncoming train.
Now he’s pretending something is green instead of red in order to justify his ongoing misconceived ineffectual pulling of that one lever.
How much does he get paid to pull the lever?
Yes, it’s the same quantum he gets paid to not pull the lever.
No wonder he gets confused from time to time.
Yes- he, Lowe and the RBA need to take collective responsibility for the delay in raising rates slightly in March/April 2021. They said rates would not rise until 2024- then house prices went off massively, way more than they should have. Even some tightening of lending requirements would perhaps have sent a signal for the overheated market at the time!! Now we are constantly hearing reports that house prices are falling between 6 and10% depending on the Capital City, without then mentioning from record highs. Context is everything. Lowe should resign; his forecasts have very little credibility.
Yes. They also said wages would rise and they never did. I disagree slightly that house prices went off massively. They went off massively from June-Sept 2020 and so had at least 18 months to see this ad pull the interest rate levers earlier like NZ’s central bank. The fact that they didn’t do so till May and ere forced to do so indicates their political preferences to assist the coalition, not give them bad news and help them win office. Raising them earlier when they should have would have hurt the coalition’s chances of winning even more.