RBA humiliated again on Australian wage growth

Greg Jericho has done a good job exposing the Reserve Bank of Australia’s (RBA) capitulation on wage growth:

Back in March… the RBA suggested “wages growth has picked up but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic”. So far so bleurgh.

In May when the RBA began raising rates it noted that “the Bank’s business liaison suggests that wages growth has been picking up”. This was echoed in June when it claimed the “business liaison program continues to point to a lift in wages growth from the low rates of recent years”. Well that sounds promising – any actual data?

By September, mention of the liaison program had been replaced in favour of a statement that “wages growth has picked up from the low rates of recent years and there are some pockets where labour costs are increasing briskly”.

Briskly! Woohoo!

And yet this week’s statement changed that to “wages growth is continuing to pick up from the low rates of recent years, although it remains lower than in other advanced economies where inflation is higher.”

I guess those pockets of increasing labour costs were both brisk and brief.

Separate analysis by Greg Jericho, published at The Australia Insitute, showing “all industries have wages growth well below inflation”:

Enterprise agreements in June averaged just 2.8% annual wage growth – well below inflation…

While it has long been clear that wages have not been driving inflation, this latest data shows that most industries are not even seeing wages growth above the Reserve Bank’s inflation target ceiling of 3%. Although the overall average annual wage increase of agreements lodged in the June quarter of 2.8% is above the wage price index growth of 2.6%, and displays yet again that enterprise bargaining agreements deliver better wage outcomes, even this is well below the current 6.1% inflation growth.

Given on average these agreements are set to last out to the end of 2024 and the Reserve Bank is currently anticipating inflation to then to be well above 3% this means most workers will be seeing a real wage cut…

Wages had nothing to do with rise in inflation, and yet we are seeing again and again evidence that workers are the ones who are being hit the hardest as prices and profits rise.

Jericho is right that “wages had nothing to do with rise in inflation”. This is illustrated unequivocally by Australia’s real unit labour cost (ULC), which according to the Australian Bureau of Statistics “are an indicator of the average cost of labour per unit of output produced in the economy” and “are a measure of the costs associated with the employment of labour, adjusted for labour productivity”.

Australia’s ULC collapsed 8.3% below their pre-pandemic level in the June quarter, meaning wages are actually helping to lower Australia’s inflation rate:

Meanwhile, the energy cartel (gas and coal) is making war profits on soaring energy prices, with mining profits now exceeding the profits of all other industries:

In turn, the share of national income going to profits has hit an all-time high, whereas the share going to workers is at an all-time low:

Anybody genuinely concerned about inflation should be lobbying the federal government for mining super profits taxes and domestic reservation of gas.

The best way to reduce domestic inflation is to de-link east coast gas prices from the war-torn global market.