Reserve Bank governor Philip Lowe says there is no evidence that a price-wage spiral will occur in Australia, despite staffing costs being front-of-mind for many of Australia’s top retail groups.
Lowe is appearing before Senate estimates this morning.
Asked about the risk of a price-wage spiral, Lowe said the RBA is on guard, but warned that any wage growth should be kept in perspective.
“At the moment, we don’t really see evidence of that occurring,” he told the Senate.
“We think that growth in the wage price index will get up to 4 per cent, maybe a bit higher, and probably not go much higher than that.
“But there are risks here,” he warned. “If we end up in the world that I was describing before, where people link wage increases one-for-one with inflation, then inflation will persist and it will be more difficult but at the moment, that’s not happening.
“The enterprise agreements that have been signed over the past four or five months have bigger wage increases this year. But then next year, they’re a bit lower again and we hear this from firms in our liaison program as well.
“They’re giving workers a bigger increase this year. But they’re they’re saying to their workforce, well, next year, we’ve got to go back to something more modest.”
Treasury said earlier in the day they see signs of stronger wages growth, noting the 3.1 per cent increase.
“The risk of a price and wage spiral remains low, with medium-term inflation expectations well-anchored to the inflation target,” Secretary Steven Kennedy said.
“As we navigate the transition back to low inflation, it will be crucial that we retain the benefits we’re seeing from full employment.”
Kennedy said a “small increase” in wages is expected over the coming financial year. He did note that retail trade had experienced particularly strong wage growth.
Retail had the largest increase in job vacancies of all industries, which has further driven up wages.
This has been noted in the recent half-year financials for JB Hi-Fi and Wesfarmers, who have seen bottom lines impacted by increased employee costs.
Last month, the Australian Bureau of Statistics released statistics that showed 49,900 vacancies across the retail sector in November 2022 – an increase of 8.2 per cent from August.
“Retail businesses are at the coalface of Australia’s economy and our daily lives, yet they can’t secure enough staff,” said Paul Zahra, the CEO of Australian Retail Association.
“Labour shortages remain the predominant issue retailers are facing,” Zahra continues, “with some stores forced to reduce trading hours in response to worsening staff availability. It can be the difference between success and insolvency for small businesses.”
It can also be the thing that tips the country into a price-wage spiral.
