May 12, 2022

Forget wages, it’s inflation that must be tackled | The Transcontinental

news, federal election, inflation, wages, gerard cockburn, loose unit, anthony albanese, minimum wage, labor

Wage hikes won’t be relevant if inflation is fast and furious over the next 18 months. The cost of living debate at the heart of the May 21 election surfaced again on Wednesday, with Prime Minister Scott Morrison declaring Anthony Albanese a ‘loose unit’ for backing a 5.1 pay rise %. But a commitment to a wage increase by either major party is null and void if inflationary pressures continue to run at twice the speed of the Reserve Bank’s target. The RBA expects wages to rise by 3% by the end of December, while inflation is expected to increase at a rate of 6% through 2022. In real terms, this translates to prices doubling the rate of increase in net salary. . It’s a scenario that will put additional pressure on prices in an economy already experiencing cost-of-living stress fractures. For the everyday consumer, this means that their wages will not keep up with the rising costs of basic goods like bread, milk and fuel. Economists and business groups have condemned Mr Albanese’s promise to drive wages up faster than inflation. And they are mostly right. A sharp increase in wages would add further pressure on inflation and potentially fuel a larger and more pronounced interest rate hike from the RBA. The political debate over the cost of living crisis has yet to address how the government can use its levers to try to curb rising inflation. Easing supply and material constraints is crucial, but current global constraints will prevent it. Westpac’s latest consumer survey showed confidence levels hit their lowest point since August 2020, due to rising rates and construction cost pressures. Perhaps the wage debate won’t be eliminated as an option this election if current measures to relieve pressure on the hips don’t work.

/images/transform/v1/crop/frm/137155669/e5082c7c-d72d-49d4-8947-5879be4ae657.jpg/r13_339_5071_3197_w1200_h678_fmax.jpg

ANALYSIS

Wage hikes won’t be relevant if inflation is fast and furious over the next 18 months.

But a commitment to a wage increase by either major party is null and void if inflationary pressures continue to run at twice the speed of the Reserve Bank’s target.

The RBA expects wages to rise by 3% by the end of December, while inflation is expected to rise at a rate of 6% through 2022.

In real terms, this translates into prices that double the rate of take-home pay increase. It’s a scenario that will put additional pressure on prices in an economy already experiencing cost-of-living stress fractures.

For the everyday consumer, this means that their wages will not keep up with the rising costs of basic goods like bread, milk and fuel.

Prime Minister Scott Morrison.  Photo: Simone De Peak

Prime Minister Scott Morrison. Photo: Simone De Peak

Economists and business groups have condemned Mr Albanese’s promise to drive wages up faster than inflation. And they are mostly right. A sharp increase in wages would add further pressure on inflation and could potentially fuel a larger and more pronounced interest rate hike from the RBA.

The political debate over the cost of living crisis has yet to address how the government can use its levers to try to curb rising inflation. Easing supply and material constraints is crucial, but current global constraints will prevent it.

Westpac’s latest consumer survey showed confidence levels hit their lowest point since August 2020, due to rising rates and construction cost pressures.

Perhaps the wage debate won’t be eliminated as an option this election if current measures to relieve pressure on the hips don’t work.

This story Forget wages, it’s inflation that needs to be tackled
first appeared on Canberra time.