No evidence of a 'wage-price spiral' in Australia
There is no evidence of runaway wage growth emerging in Australia, says RBA board member Iain Ross
RBA monetary policy board member Iain Ross delivered a speech last night rejecting the notion of a potential wage-price spiral in Australia. He explained that the idea of rapidly rising wages feeding into damaging inflation has been a frequent topic in financial media since inflation began increasing sharply from mid-2021. However, Ross argued that today's labour market framework is vastly different from the 1970s and 1980s, and there is no evidence suggesting the emergence of a wage-price spiral in the present circumstances.
He highlighted the significant differences in Australia's modern labour and wage-setting institutions, including a diminished union movement, tougher sanctions for unlawful industrial action, and a broader industrial structure. These changes have made the wage dynamics of the 1970s much less likely to recur. Ross further discussed the old concept of comparative wage justice, which helped spread wage rises through the economy 50 years ago, as well as the old practice of indexing wages to the consumer price index every three months.
He noted that these practices are no longer prevalent today. The RBA board is set to discuss interest rate decisions at a highly-anticipated meeting on Monday and Tuesday, with inflation and economic activity remaining stronger than anticipated.
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