A month or so ago, the RBA said it was going to be patient about inflation and wait to see wages growth before it hiked. It was no longer going to anticipate wage growth, it wanted to see it first to ensure it was sustainable.
Most of Australia’s inflation is still tradable (coming from offshore) or a temporary pandemic distortion (like rents) and will wash out in due course. Especially since there is clearly a global accident of considerable proportions building.
But, then along came the corporate media panic and the RBA folded like a cheap suit.
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What changed was its business liaison was telling the bank that wages were taking off. The NAB survey captured the panic nicely:
But, as you can see, these kinds of surveys have dramatically overestimated wages strength for nearly a decade. Here is the RBA’s own version:
Information from the Bank’s liaison program and other business surveys suggests that private sector wages growth has picked up in the past couple of months. While the majority of liaison contacts continue to report annual wages growth of 3 per cent or less, there has recently been a marked increase in the share of firms reporting average wage increases already above 3 per cent (Graph 4.20). Higher average wages growth at many firms is being driven by larger increases for specific occupations and skill sets in high demand, with these firms otherwise looking to non-base-wage measures to retain and attract staff. However, there have been a growing number of firms reporting more broad-based salary increases for all staff.
Liaison reports suggest that wages growth will pick up further over coming quarters. More than half of firms expect to pay wage increases above 3 per cent over the year ahead, consistent with further tightening in the labour market and a greater focus on attracting and retaining workers. By contrast, only a small share of firms expect to pay wage increases below 2 per cent; the share expecting to keep wages frozen has fallen to a very low level. In line with messages from liaison, surveys of wages growth expectations have also risen recently (Graph 4.21).
Graph 4.20
Graph 4.21
In short, almost nobody, not even unions, expects wage inflation above 3% which is well short of the RBA’s 4% for sustainable inflation.
Westpac’s new Red Book is the same:
Consumer wage expectations haven’t risen AT ALL. Why? Aussie workers these days live in a monopsonistic labour market and media soup that relentlessly browbeats them about the horror of strong wages.
Indeed, households are also so leveraged, most notably to property, that arguably, they don’t even want wage rises for fear of rate hikes. They are already freaking out about the value of their largest asset:
Which helps explain why consumers are still saving for an imminent calamity:
And getting set to pull in spending hard:
The Lunatic RBA is back and deflation will shortly follow.
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.