The true drivers of the costof-living crisis

In a week where company super-profits have been revealed, it is ever clearer that wages have almost nothing to do with the inflation crisis.

The embattled head of the Reserve Bank, Philip Lowe, has lately changed the way he describes his great fear for Australia’s economy. He used to warn about a “wageprice spiral”, driving inflation even higher. Now he has turned that around and begun warning of a “price-wage spiral”.

A small semantic change, you might say, but it at least acknowledges that the primary driver of Australia’s persistent inflation problem is not wages. Still, Lowe and the RBA continue to insist more interest rate rises will be needed to combat inflation – albeit inflation caused by wages chasing prices, rather than prices chasing wages. They continue to warn of an incipient wages breakout, although the evidence suggests no such thing.

The truth is workers’ pay rose by just

0.8 per cent in the three months to December. This was significantly down on the preceding quarter’s increase of 1.1 per cent, and well below what the RBA expected. The annual rise was a modest 3.3 per cent.

Meanwhile, the cost of living continues to rocket upwards. Australian Bureau of Statistics data show the consumer price index increased by well over twice as much as wages – 1.9 per cent for the quarter and 7.8 per cent for the year.

The maths is simple and compelling: prices up 7.8, wages up 3.3, average worker

4.5 per cent worse off at the end of last year than they were at the beginning.

The RBA itself, in its February statement on monetary policy, said wage rises have “so far remained consistent” with its long-term inflation target. This week’s ABS data suggest that wage rises are moderating rather than accelerating.

There is no wage-price spiral, nor even a price-wage spiral. Some suggest Australia’s inflation now is increasingly driven by a profitprice spiral instead.