UBS: Thank closed borders for your coming pay rise

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No mass immigration means a pay rise for you. Via UBS:

For the RBA, inflation isn’t “sustainable” unless wages at least 3% y/y

Although the RBA note the real economy has significantly exceeded even the most optimistic expectations, wages are noticeably weaker. Indeed, the clear condition to lift the cash rate is achieving actual inflation sustainably within the 2-3% band, which requires 3%+ y/y wages. The RBA and Treasury’s primary framework for forecasting wages is NAIRU. However, both recently lowered estimates, with Treasury now 4½-5% (was 5%+), and RBA Governor Lowe saying ‘~4% or possibly in the 3’s’ (was ~4½%). Furthermore, the RBA’s upside growth scenario sees unemployment drop to ~3¾% by mid-23, but wages still don’t lift above 3%. However, we still see the underutilization rate as a more accurate driver of spare capacity in the labour market & wage outcomes.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.