Terry McCrann claims Australia “could be heading into a wages-prices spiral that will lock in higher interest rates for longer”.
McCrann’s argument is that the NSW Government has backed a wage rise of more than 4% for 500,000 public servants, and the federal government will likely grant a significant increase in the minimum wage to 2 million-plus workers.
“Those sorts of increases would spread across the workforce”, McCrann argues.
“Simply, brutally, realistically, it would force punishing RBA rate hikes”, but not immediately.
“We are now facing the brutal reality that even Lowe will have to recognise he has no choice but to tackle potentially dangerously entrenched wage-driven inflation head-on”.
“The brutal reality is that trying to catch up; to get wage rises as high as inflation will only hurt those very workers”, McCrann claims.
I view Terry McCrann’s arguments as laughable.
The latest wage growth indicators all show that wage growth is falling.
SEEK’s advertised salaries index and the official quarterly wage price index are falling:
Xero’s small business wages measure has also plummeted:
Both suggest inflation is not embedded.
Moreover, it is hard to see how a wage-price spiral could possibly set in when record immigration is growing labour supply at its fastest ever pace:
The Australian economy needs to generate record numbers of jobs just to keep the unemployment rate stable.
However, with the economy slowing in response to the RBA’s aggressive monetary tightening, the unemployment rate will inevitably rise and wage growth will fall.
