Following Reserve Bank of Australia (RBA) governor Phil Lowe’s speech on Thursday to the Anika Foundation, The AFR and The Australian was quick to scaremonger about a possible wage-price spiral driving up inflation (examples below):
The scaremongering was in response to the following comment by Phil Lowe [my emphasis]:
Wages growth has picked up, but not nearly to the same extent as in the United States (Graph 10). This is an important difference. While there are some areas where wages are rising very quickly in Australia, aggregate growth in wages has not responded materially to the higher inflation and is not inconsistent with inflation returning to target over time. It is important that this remains the case and that we avoid the cycle of higher inflation leading to higher wages growth and then higher inflation – a cycle like that would end in higher interest rates and a sharper slowing in the economy.
Advertisement
The full text of this article is available to MacroBusiness subscribers
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
