As the Reserve Bank of Australia (RBA) has been left further and further behind by international institutions in its denialism about the role of corporate profits in inflation, there’s been a growing question of not merely how long it would remain in denialist mode, but how exactly it would try to catch up to the US Federal Reserve, the European Central Bank, the OECD and others.
The minutes from its June meeting suggest it was starting that process even as the OECD was humiliating it by detailing the huge role profits had played in Australian inflation, compared with wages.
It was just a start, though. The denialism remains deep at Martin Place.
The minutes devote considerable space to wages growth and the possibility it could feed inflation. Even workers simply getting wage rises that match inflation would be “concerning”, the minutes said — not merely do we need to see hundreds of thousands of Australians lose their jobs, workers need to suffer yet more real wage cuts. The minutes devote 300 words specifically to worrying about wages, a word that occurs over a dozen times. How often does “profit” occur? Not at all. But the minutes do, near the end, contain this gem:
Members discussed the possibility of implicit indexation of wages to past high inflation and the potential for this to become widespread. Similarly, members observed that some firms were indexing their prices, either implicitly or directly, to past inflation. These developments created an increased risk that high inflation would be persistent, which would make it more difficult to keep the economy on the narrow path.
So the RBA admits that firms are pushing prices up higher than inflation, causing persistent high inflation. Of course, it doesn’t say this is about maintaining profits, the implication is mere carelessness on the part of firms — oops, we’ve increased prices by 2021 levels! Damn! That this leads to higher profits is, presumably, a mere byproduct of that carelessness. Insert shot of a shocked, shocked, Claude Rains being handed his winnings in Casablanca.
But the fact that firms are doing this to the extent that even big business’ mates on the RBA board noticed it only comes after the possibility that wages growth might push inflation up is discussed yet again. For the RBA, the mere possibility that wages growth might push inflation up is worth hundreds of words of analysis, but the reality that profits are driving inflation up gets a couple dozen words — and both are equated as equal risks to inflation.
As we know from the OECD’s data, profits have played more than twice the role that wages have played in driving up Australian inflation over the past few quarters. They’re not even close to equal in terms of impact.
It’s nice of the RBA to end its blanket denialism and catch up with the rest of the world in recognising price gouging by firms is causing inflation — sorry! increasing the risk of inflation. But it’s still locked into its neoliberal worldview that the real problem is always those horrible workers wanting pay rises.
For an institution that is supposedly obsessed with inflation, you’d think it would pay a lot more attention to what’s causing it, rather than rereading 1970s economics textbooks.
