Waleed Aly has been told to apologise for his ‘incorrect’ claim that the only way to stop inflation from rising is to keep wages low.
‘It’s very hard to think of a single measure for cost of living that doesn’t make the problem of inflation worse,’ Aly said on ABC’s Insiders program on Sunday.
He said ‘wage stagnation… so that wages are declining in real terms, is actually the thing that might keep inflation under check’.
But CoreData Research economist Andrew Inwood said Aly was making an assumption that Australia’s rising inflation was ‘broad based growth-driven inflation’ instead of being heavily affected by the global supply chain.
Social media commenters also said Mr Aly needed to issue ‘a retraction and correction’, and his claims were ‘blisteringly incorrect’.
Mr Inwood said the supply chain was being squeezed by increased prices and reduced supply from China, and Russia’s invasion of Ukraine, which was affecting global food and fuel prices.
‘Measuring inflation is complex and really important because it’s one of the great indicators of the general health of a country’s economy,’ he said.
‘It’s important for a government to try and keep inflation in its target range of between two per cent and three per cent because that means the economy is growing but not overheating.
‘At the moment inflation in Australia is running at just over five per cent, or twice what it probably should be which is attracting a lot of attention – particularly after a long period of very low inflation and particularly when we are weeks out from a highly contested federal election.’
Aly, who comes from a legal, not economic, background, claimed increased productivity was also not the answer to inflation as ‘even that, to the extent that puts more money in people’s pockets, that’s going to be inflationary’.
Mr Inwood, who is an economist, said the challenge was that ‘inflation can come from three areas – wages growth, productivity or external costs rising’.
‘At the moment the biggest drivers of inflation are coming from the things that we import like petrol and fertiliser, which are driving up the costs of domestic transport and agriculture,’ he said.
He said transport and agriculture were the hardest hit by inflation – fertiliser from China was $400 a tonne about six months ago and is now nearly $1,100 a tonne.
Mr Inwood said the Reserve Bank of Australia calculated inflation by looking at a basket of 11 everyday costs ranging from housing (the biggest, making up 23 per cent of the cost) to communication (the smallest making up two per cent).
Transport, education, and food costs rose the most in the past quarter, while the rest stayed in the two to three per cent band – for example housing rose by 2.3 per cent nationally.
‘The other thing that the RBA looks at is what is happening with wages – and wages in Australia have been relatively flat for the past 10 years,’ Mr Inwood said.
‘In the last report by the RBA, wages growth remained pretty flat at 2.3 per cent up from 2.1 per cent in the December quarter.
‘So yes – inflation is here and it’s hitting Australians at the petrol pump and in the supermarket – but the big indicators like housing and wages have stayed the same, which makes the solution much harder to manage and much more complicated to understand.’
The response to Mr Aly’s comments was also swift on social media with several calling out his grasp of economics and saying he should apologise.
One wrote ‘maybe try thinking harder’ if, as Mr Aly said he couldn’t ‘think of a single measure for cost of living that doesn’t make inflation worse’.
Another added: ‘Waleed needs to refresh his grasp of basic economic principles in terms of the relationship of improvements in productivity and inflation.’
A third wrote: ‘Some pretty questionable economic analysis from Waleed Ali – to use a specific term like hyperinflationary moment incorrectly and to link current inflation to wages… is just going to confuse people.’
Hardest hitting of all, was the poster who wrote: ‘Maybe Waleed should stick to human interest stories and laughing at co-hosts’ puns on The Project.’