How goes that wage-price spiral that the Reserve Bank of Australia, its departing governor Philip Lowe, The Australian Financial Review’s journalists and innumerable op-ed contributors — not to mention most business groups — have been running around for a year or more shrieking about?
It doesn’t exist. It never existed. And we got still more confirmation of that from the wage price index (WPI) for the June quarter, released yesterday.
The WPI rose 0.8% in the June quarter (the third quarter in a row in which it rose 0.8%), and 3.6% over the 2022-23 financial year. This means that with the consumer price index running at 6% in the same period, workers’ wages fell by 2.4% in real terms through the year.
Wage-price spiral? We wish. Far from selfishly driving inflation with their demands for wage rises, workers are going backwards at a rate of knots. It helps explain the weak retail sales figures and the weakening sales and profit performances for June 30 reporting retailers such as JB Hi-Fi, Harvey Norman, Temple & Webster and others. When it comes to retailers whingeing about having to pay workers a decent wage, what goes around comes around.
The 3.6% annual rate in the June quarter — down a touch from the 3.7% in the year to March — was well below what workers were getting back when Wayne Swan was treasurer. That’s when unemployment was over 5% and the Aussie dollar was at parity with the greenback, strangling investment and exports. It adds to the growing belief that wage growth not merely isn’t spiralling upwards, but has peaked. Talk about five minutes of economic sunshine.
Private sector wages also grew 0.8% over the June quarter for annual growth of 3.8% — again in line with March quarter 2023. Public sector wages rose 0.7% over the quarter — the annual growth there of 3.1% was the highest recorded for the sector since March quarter 2013 and should bring a smile to the dial of Lowe, who for so long pleaded with governments to give public sector workers a decent pay rise.
Interestingly, the Australian Bureau of Statistics (ABS) said that award-driven rises (by unions) didn’t play a part in the June quarter increase — individual pay rises again dominated, followed by enterprise agreements. It was the second June quarter in a row that union-driven wage rises didn’t occur, another nail in the coffin of the wage-price spiral myth.
Construction, where a government stimulus-led boom is giving way to a much lower level of activity, saw the strongest quarterly and annual growth — 1.3% and 3.9% respectively. Manufacturing and transport also saw solid gains. But no major private industry sector reached higher than 4.2% annual growth, despite inflation.
You wouldn’t think the ABS had produced such low wage growth numbers if you believed Australian Industry Group (Ai Group). The result “appears likely to understate the ongoing build-up of wage pressures”, warned Ai Group head (and industrial relations “reform” advocate) Innes Willox.
Willox will always speak from the perspective of employers eager to slash wages, but presumably we would get more sensible observations from the RBA? Well, the minutes of this month’s board meeting were also out yesterday. The board’s thoughts on wages?
Turning to wages, members noted that timely indicators of wages growth were steady at around 3.5% to 4% in the June quarter. Wages growth — as measured by the wage price index — was expected to increase in the second half of 2023 because of ongoing tightness in the labour market, increases in award and minimum wages, and developments in public sector wages.
The RBA board is still desperately looking for that wage-price spiral — when the only spiral workers are on is the one reducing their purchasing power.
