As unions want a return to industry-wide bargaining, Australia might soon be engulfed in a wage-price spiral – an economic scenario that can exacerbate inflation – as new data indicates that pay is increasing by a greater amount than previously thought.
In a wage-price spiral, wage increases lead to price increases in a never-ending cycle.
ANZ’s estimation of national accounts data reveals that broad-based labor costs increased by 5.4% in the year leading up to June.
This was more than double the gauge of labor expenses employed by the Australian Bureau of Statistics, the wage price index, which was 2.6% for the same time.
According to ANZ senior economist Felicity Emmett, the rate of salary growth in Australia is the fastest it has been in a decade.
She stated that the strength of wage growth in the second quarter national accounts was the most significant policy-related development.
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ANZ’s analysis of national accounts data reveals that broader labor expenses increased by 5.4% in the year to June (pictured is a Sydney hospitality worker at The Rocks)
“Wage pressures are substantially more intense than suggested by the wage price index.”
Aside from the volatility caused by the pandemic, this is the highest growth rate since 2012.
Regardless of how they are calculated, wages continue to lag behind inflation, with the consumer price index increasing by 6.1% in the 12 months leading up to June – the quickest pace since 1990, excluding the implementation of the GST in 2000.
Governor of the Reserve Bank of Australia Philip Lowe stated on Thursday that firms are now increasing their pricing to combat inflation, resulting in greater salary increases.
He told the Anika Foundation, “As prices rise, it becomes more difficult for firms to resist larger salary increases, especially with the labor market so tight.”
Thus, the community’s psychology is evolving.
On Tuesday, he remarked that earnings were rising rapidly, but mortgage debtors were hit with a 0.5% interest rate hike – the fifth consecutive increase since May.
‘Wage growth has stepped up from the low levels of the past few years, and there are regions where labor expenses are rising rapidly,’ he said.
This was more than double the wage price index of 2.6% reported by the Australian Bureau of Statistics for the same time. Senior economist at ANZ, Felicity Emmett, stated that Australian salaries were rising at the quickest rate in a decade (pictured are construction workers protesting at the Construction, Forestry, Maritime, Mining and Energy Union offices in Melbourne)
“Given the tight labor market and the upstream price pressures, the board will continue to monitor the evolution of labor costs and the price-setting behavior of enterprises during the next period,”
In July, Treasurer Jim Chalmers told the legislature that wages were not to blame for inflation.
He stated, “We do not have an inflation problem because wages are too high or because we are in some sort of wage-price spiral.”
The wages of Australian employees are not responsible for this inflation.
The Australian Council of Trade Unions campaigned for a return to industry-wide bargaining last month, in which a wage hike for one workplace would be repeated across the sector.
The secretary of the ACTU, Sally McManus, used the term “multi-employer or sector bargaining,” causing employers to fear several strikes during pay negotiations.
The Australian Council of Trade Unions argued for a return to industry-wide bargaining last month, in which a wage hike for one workplace would be mirrored throughout the sector. Sally McManus, the secretary of the Australian Council of Trade Unions, popularized the term “multi-employer or sector bargaining,” causing companies to fear several strikes during pay negotiations.
The labor movement has rejected the enterprise bargaining system introduced by the Labor administration of former prime minister Paul Keating in 1993.
In August, Ms. McManus stated, “Our existing system was designed 30 years ago when we had an entirely different economy and many more enormous enterprises.”
Effectively, the ACTU is advocating for a return to the pattern bargaining that existed prior to 1983, when Bob Hawke’s new Labor administration negotiated the Prices and Incomes Accords to prevent a wage-price spiral.
In May 1981, average weekly earnings increased by 14% and inflation reached 11%, according to figures from the Australian Bureau of Statistics.
During a time when the average full-time male worker earned less than $300 per week, the Amalgamated Metal Workers Union was able to achieve a $39-per-week wage raise through strike action, which rippled throughout the economy.
In June 1981, unemployment was still at 5.4%, but less than two years later, in July 1983, it had nearly doubled, reaching 10.5%.
In July of 2022, the unemployment rate reached a 48-year low of 3.4%, a dramatic change from the previous year’s condition.
Governor of the Reserve Bank of Australia Philip Lowe remarked this week that wage growth was robust, as home borrowers were hit with another 0.5 percentage point interest rate hike – the fifth consecutive increase since May.
The ABS national accounts figures for June indicated that gross domestic product grew by 0.9% in the quarter and by 3.9% in the preceding fiscal year.
Despite interest rate increases in May and June, shops were busy during the June quarter, with consumer spending increasing by 2.2%.
The RBA anticipates that inflation will reach a record 32-year high of 7.75% by the end of 2022.
Since 1994, the rate hikes in May, June, July, August, and now September of 2.25 percentage points represent the steepest annual increases.
The cash rate reached a seven-year high of 2.35 percent on Tuesday, surpassing its previous six-year high of 1.85 percent.
Dr. Lowe predicted that the latest increase would not be the last.
“The board anticipates future interest rate increases in the coming months, but it is not on a predetermined path,” he said.