The Reserve Bank of Australia’s (RBA) Minutes of its December Monetary Policy Meeting notes explicit concerns that Australia could follow other developed nations into a wage-price spiral.
Wages growth had continued to pick up from the low rates of recent years and information from the Bank’s liaison indicated that it was expected to pick up further. Members discussed the upside risk to wages growth, which stemmed largely from the tight labour market and high inflation…
Some other economies had earlier been in a similar situation to Australia and had subsequently seen wages growth pick up strongly, which risked high inflation becoming entrenched. In these cases, returning inflation to target was likely to involve a period of very weak demand, and possibly a recession. Australia was not yet in such a situation, but the inflation mindset was shifting, with firms more willing to put up prices than a year earlier and upside risks to wages growth potentially building…
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