The fact Australians find themselves in the throes of a record fall in real wages isn’t likely to ease fears at the Reserve Bank of a “wage-price spiral”, some economists have warned, as the bank faces accusations it has made life tougher for workers.
According to the Australian Bureau of Statistics, the wage price index increased by 0.8% through the last three months of 2022, below expectations but enough to bump the annual rate of wages growth to 3.3%. Economists’ median estimate had been 3.5%.
With inflation at 7.8%, the gap between wages and prices has widened to a gulf of 4.5%, resulting in a sharp fall in Australians’ real wages unseen since records began in 1998.
The figures have prompted a renewed wave of RBA criticism, where concerns over a wage-price spiral — in which wages increases drive price increases which in turn lead to further wage increases — were central to its monetary policy outlook earlier this month, forecasting pay increases to run past 4% this year.
“It’s a big miss,” Diana Mousina, a senior economist at AMP Capital, said of the “disappointing” result.
Economists agreed the figures showed no evidence of a wage-price spiral. Treasurer Jim Chalmers said wages growth “isn’t the problem” driving inflation, but is instead part of a solution to easing cost-of-living pressures.
“We don’t have an inflation challenge in our economy because wages are too high, but because of a war in Ukraine, pressure on global supply chains, and other challenges in our own economy ignored for too long,” Chalmers said on Wednesday.
But some economists warned the RBA wasn’t likely to stray far from its current position, at least until it sees the results of next week’s national accounts, which will give a broader insight into the cost of labour. It fears that if pay rises of about 4% become the norm, it’ll be increasingly difficult for it to bring inflation back within its target band of 2% to 3%.
NAB says it still expects a 25 basis point lift to the cash rate through to March, April and May before increases are paused to allow time for the effects to flow through to the economy. KPMG expects another lift in March.
Commonwealth Bank of Australia economist Gareth Aird said that although the RBA has remained hawkish, recent economic releases “could complicate the near term policy outlook”. It expects the wage price index will peak at 3.8% around the middle of the year, below the RBA’s 4.2% forecast.
“Today’s report should be interpreted as good news,” Aird said on Wednesday. “On one hand it may not seem as such given real wages are deeply negative. Workers in Australia have gone backwards. But the wages dynamics right now in Australia mean that the RBA can pursue their objective of keeping the economy on an ‘even keel’.”
Australian Council of Trade Unions secretary Sally McManus said the news wasn’t so good for workers, however, who were suffering as a result of overstated wage price forecasts set by the central bank.
“Unemployment is worsening, and more Australians are looking for additional hours to make ends meet,” she said on Wednesday. “The RBA must not ignore its other key objective, which is full employment.”
“Forcing unemployment up is a decision that hurts real people and real businesses. The RBA must stop pushing workers and the economy off a cliff with rapid rate rises.”
She called on businesses to stop leveraging public debate over inflation to rise prices even further than necessary to “fatten their profits”, despite “seriously hurting ordinary Australians” who are paying the price with their jobs and bank accounts.
Australia Institute senior economist Matt Grudnoff said profits were playing a central role in driving inflation in Australia, and that to blame workers was “gaslighting of the highest order”.
He said Lowe risked sending the economy he was trying to save into a recession, unless he takes a broader approach to monetary policy and recognises that “workers are not to blame for rising inflation”.
“At the moment [the RBA] has a singular focus on bringing inflation down. I think that is wrong,” Grudnoff told Crikey.
“All they’re thinking about is inflation to the point where I’m worried, and increasingly other economists are worried, that the RBA will push us into a recession if [it believes] it needs to do that in order to bring inflation back down …
“Is a recession inevitable? No, I’m not saying that. But I think there is a real concern that they could go too far.”
We shouldn’t be run by economists. All they are going to do is impoverish the already battlers. Historical corrections to the economy are simply not working when the working poor have been subjected to frozen wages for 10 yrs while corporate profits have soared to obscene levels. A decent super profits tax, and cancelling the 3rd round of tax cuts would do infinitely more for the economy and societal equity.
Not a problem. I doubt that many economists would look at the economic decisions made by government during the past
twentythirtyfifty…since ever, really, then nod their heads and agree that “yep, these look like the decisions a sane economist would make”.There are economists who would nod their heads and agree with miscellaneous individual decisions made by government. This is because those economists recognise the letterhead on their payslips.
The RBA only has one tool, so they have little choice but to use that tool.
Any talk of wage rises (outside of corner cases) is laughable in the face of tripartisan policy commitment to a massive labour surplus and crippling of worker bargaining power.
To paraphrase Paul McDermott from a lot of years ago: “You see a screw in front of you that needs loosening. You have… a hammer.”
That is a somewhat unfair assessment in this case, because the RBA has a remit only to tighten and loosen a screw, and they have a screwdriver with which to do it – but that screw is just one part of a larger piece of machinery which they are barely even allowed to acknowledge the existence of.
Record profits are being announced from the banks , supermarkets airlines on the backs of underpaid workers.
The RBA is shackled by only being able to see problems through the prism of orthodox economics. This is obvious in their predictions about increased wage growth, which we all knew would never eventuate in a massive part because of decreasing bargaining power of labour in the economy.
The current problems facing the economy defy the logic of a lot of mainstream economics.
Couple of things. Is the average Joe Blow getting some part of this wage growth or is it just big hitters getting more big hits? Secondly I am a bit annoyed about lazy governments not doing their bit to build up our economy and just sitting back and beating up the RBA struggling with their “screwdriver”. Why cant the lazy twerps decide to make Australia into an industrial powerhouse using all the minerals we just send overeas to more visionary countries. Dont come back at me saying our wages are too high and we wouldnt be competitive. I wont accept that garbage anymore.