RBA
In the Q&A after RBA Governor Lowe’s speech last night, he was asked if he was exaggerating his caution regarding a wage-price spiral. His response not only explained how such a spiral occurs but included why it would be a problem, and made clear that it is a phenomenon that the RBA wants to avoid. This morning government members are united in their criticism of his response, as reported by The Australian.
- Governor Lowe said “If we all buy into the idea that wages have to go up to compensate people for inflation, it will be painful,” … “and this is what happened in the 70s and 80s … and that tended to be a disaster.” The cost-of-living adjustment included in the Queensland teachers pay deal shows that this could be a risk.
- He reassured that while negative real wages are “tough” for people, it is what is needed so that when supply-side issues are resolved inflation can come down.
- There has been a lot of discussion around wages growth, especially in real terms. But the RBA doesn’t expect real wage growth to become positive until H2 2024.
- The Q3 WPI rose 3.1% y/y but when deflated by headline CPI it fell 3.9% y/y. This is not only the lowest since the series began in 1998 but the next lowest was the GST-impacted -2.8% in Q3 2000. Other higher measures of nominal wages are also in negative territory in real terms with the average pay change -3% y/y and real SEEK advertised salary index -3.1% y/y.
- Real wage growth averaged +0.6% y/y in the 10 years from Q1 2011 compared with 2.5% for nominal. Real wage growth was flat from Q1 2017 to Q2 2018.
Australia real wages growth ex bonuses y/y% (deflated with CPI)
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