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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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MNI INTERVIEW: RBA's Harper Says Wages Need 4% Growth
Reserve Bank of Australia board member and academic Ian Harper says that wages growth needs to be “about 4%” to drive inflation sustainably within the RBA’s target range and create the conditions for interest rates to rise.
In an interview with MNI on Thursday, Harper – the Dean of the Melbourne Business School – said that wages growth of around 4% should create 1.5% labour productivity growth and drive inflation sustainably into the mid-point of the RBA’s 2% to 3% target, see: MNI STATE OF PLAY: Dovish RBA Waits On Wages Growth.
“Gaining an increase in labour productivity growth to this level is problematic in the short run,” Harper said, speaking in a private capacity and not as an RBA board member.
“Demand is growing strongly, and supply is increasingly constrained so you would expect that nominal wages growth must pick up sometime soon – at least, that’s what history would suggest!”
OTHER INDICATORS ROBUST
Wages growth is at 2.3% with other key economic indicators more bullish. But the RBA has consistently pointed to flat wages growth as a key reason for its dovish outlook.
Trimmed mean inflation is at 2.6%. The RBA has forecast it will increase to 3.25% this year before levelling off at 2.75% until June 2024. By June 2024, the RBA forecast is that wages will be growing at 3.25%.
RUSSIAN INVASION IMPACT ON PRICES
Asked for his views on the inflationary impact of the Russian-Ukrainian conflict, Harper said that while this would produce a short-term spike in oil prices “this is a relative price increase and not a general price increase.”
“Of course, one can spark the other if there’s a rise in expected inflation over the long term. So far, those expectations are still anchored at 2.5% as is evident in longer term indexed-bond prices as well as surveys. It’s early days but the energy price rises are yet to translate into persistent general price level increases,” he said.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.