Australians hit by largest fall in real wages on record
Shane Wright
February 22, 2023 — 7.40pm
Australians are enduring the biggest fall in real wages on record, with new data prompting accusations the Reserve Bank’s sharp increase in interest rates to head off a wage-price spiral is causing unnecessary economic pain to ordinary workers.
Figures from the Australian Bureau of Statistics showed the closely watched wage price index increased by a lower than expected 0.8 per cent through the final three months of 2022. It took the annual rate of wages growth to a 10-year high of 3.3 per cent.
Treasurer Jim Chalmers says new data shows there is no wage-price spiral.CREDIT:ALEX ELLINGHAUSEN
But with inflation running at 7.8 per cent, the gap between wages and prices now stands at 4.5 per cent – the largest gap since the bureau started compiling its wage price index in 1998.
The Reserve Bank, as recently as its quarterly outlook on the economy, noted the importance of avoiding a price-wage spiral driven by the price-setting actions of businesses and a sharp increase in pay packets.
The ABS figures showed the proportion of people in the private sector getting a wage increase decreased from 23 per cent to 21 per cent, while the size of those pay increases also moderated, down from 4.3 per cent to 4 per cent.
In the public sector, wage growth is now running at an annual rate of 2.5 per cent. Wages for Victoria’s public sector workers lifted 2.8 per cent over the year, in NSW they increased 2.5 per cent and in Western Australia they inched up 1.1 per cent.
Treasurer Jim Chalmers said the figures proved there was no wage-price spiral.
“There is no evidence of a wage-price spiral in our economy. Wages growth isn’t the problem when it comes to inflation, it’s part of the solution to cost of living pressures,” he said.
“We don’t have an inflation challenge in our economy because wages are too high, but because of a war in Ukraine, pressure on global supply chains and other challenges in our own economy ignored for too long.”
Australian Council of Trade Unions secretary Sally McManus said the figures showed the Reserve Bank had again misread the state of the jobs market and its impact on wages.
“This is the greatest drop in workers’ real pay in recorded history
– no wonder one in four workers are skipping meals,” she said. “The RBA was predicting much higher wage growth, and once again they’ve got it wrong. Not only is their thinking stuck in the 1970s, they’re basing interest rate decisions on flawed projections.”
The result was lower than financial market expectations and the Reserve Bank’s most recent forecasts, released less than a fortnight ago, which showed the RBA tipping wages growth at 3.5 per cent through 2022.
Callam Pickering, Asia-Pacific economist with job website Indeed, said the figures showed the purchasing power of incomes had crashed as inflation easily outstripped wage increases.
“Adjusted for inflation, Australian wages have fallen by 4.2 per cent over the past year and by 6.8 per cent since their peak,” he said.
“More than a decade of hard-won wage gains – our blood, sweat and tears – lost over the course of just one year. Unless you’ve received a promotion or changed employer recently, there is a good chance that your salary buys a lot less now than it did a year ago.”
AMP Capital senior economist Diana Mousina said the figures would challenge the Reserve Bank, which markets expect will take the cash rate to 4.1 per cent by the middle of the year.
She said the RBA may lift interest rates just once more as the wages figures add to growing evidence the economy is turning.
“There are now signs that the labour market is at a turning point, with jobs growth negative over December/January and forward-looking indicators of employment pointing to softer jobs growth in coming months,” she said.
“It will be difficult for wages growth to accelerate in an environment of a slowing labour force.”
https://www.theage.com.au/politics/federal/australians-hit-by-largest-fall-in-re...Next in line will be a wages / price spiral as people need higher wages to service their loans.
Guess what?
Which of these options do you think will happen?
1. Businesses will cut their profits to pay higher wages.
2. Businesses will pass on higher charges for their goods and services.
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