Retailers and suppliers who are under pressure, from unions and their members demanding additional pay rises, appear to have the backing of the Reserve Bank to limit pay rises running into 2024 without an increase in sales and profits.
Reserve Bank governor Michele Bullock has warned that 4 per cent wage rises cannot be sustained without an increase in productivity with the real possibility emerging that another rate rise could be on the cards before the end of December 2023.
Governor Bullock claims that the key to stopping further falls in real wages was to restore low and stable inflation.
“It’s good for employment. It’s good for people’s pay packets – their real wages – and it’s good for the Australian economy.” she said this week.
Bullock says inflation remains a crucial challenge and needs to be bought under control with some observers blaming the Federal Labor Government for support in some cases double digit salary increases for union members.
Earlier today Bullock warned that rapidly rising labour costs were posing a challenge to the central bank as it battled to get inflation back to its 2 to 3 per cent inflation target.
The stark reality is that Australia is falling behind with inflation currently running at 7.8% compared to 3.2 in the USA, 3.80 in Germany, 5.6% in New Zealand and the UK.
The 3.6 per cent decline in labour productivity over the past 12 months means unit labour costs – the difference between wages and productivity are growing significantly and are now running at around 7.5 per cent.
For retailers’ inflation is a double-edged sword, push up sales and inflation stay where it is, and if they slump there is the real possibility of the industry having to lay off people.
This week Black Friday sales are set to create a problem with billions set to flow into retailers tills with this further adding to RBA problems in trying to control inflation.
Annual wages growth hit a 14-year high of 4 per cent in the September quarter, as the Federal Labor government and State Governments controlled by Labor, backing employees and low-paid workers receiving large one-off wage rises due to decisions made by the Fair Work Commission.
Some observers claim that Albanese government who is claiming praise for the increase in wages growth as a way of rewarding the unions who backed them into power has not come up with any solutions that will get inflation down.
Governor Bullock claims that the Federal Governments actions need to be matched with an increase in productivity to keep inflationary pressures under control.“But we haven’t had any productivity growth in Australia for a number of years,” Ms Bullock said during a panel discussion at a conference hosted by ASIC.
“Although wage rises of around about 4 per cent in a normal context of productivity growth aren’t necessarily inconsistent with our inflation target. If we don’t have any productivity growth, they’re on the high side and they’re going to contribute to rises in costs.”
“That’s not helpful for the inflation thing,” Ms Bullock said.
The minutes of the RBA’s last board meeting board meeting indicated that the board may increase the cash rate beyond 4.35 per cent amid fears high inflation may prove persistent.
“Members agreed that whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable time frame would depend on how the incoming data alter the economic outlook and the evolving assessment of risks,” the minutes said.
The RBA’s current economic outlook is predicated on one to two interest rate rises over coming quarters a move that is set to push up mortgage payments to as high as 7% for some borrowers.
Echoing her predecessor Philip Lowe, Ms Bullock pushed back on a perception that high inflation was a product of supply-side developments in petrol prices, rents and energy.
“But actually, there’s an underlying demand component to it as well, and that’s what the central banks are trying to get on top of.”
“High inflation was being underpinned by above-average price rises for a wide range of consumer goods and services. There was clear evidence – most notably for services price inflation, which was quite brisk – that this owed to domestically generated pressures associated with aggregate demand exceeding aggregate supply.” Bullock wrote.
