Remember all that talk about wage-price spirals? About wages driving inflation? All that worry about a wages breakout causing interest rates to rise? Ahh yes, good times. It seems that many commentators and economists love fairytales, and the story that wages were causing inflation was never true and the figures released on Wednesday by the Australian Bureau of Statistics show just how much of a struggle it is for wages to keep up with inflation.
In December annual wage growth hit 4.2% – the fastest since 2009. Such strong growth brought with it the usual suggestions that wages were growing too fast and the Reserve Bank would be ready to hit the interest rates brakes.
Well, relax. The March quarter figures show annual growth of 4.1% and all signs are that 4.2% was the peak.
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Some of the commentary surrounding the budget has been that the government has different economic predictions than the RBA’s.
The jury is still out on who will be most accurate on their predictions of inflation but, on wage growth, the government looks likely to win the prize. The RBA estimated that by June wage growth would be 4.1% while the government has predicted 4.0%.
Wage growth is likely to fall again because the figures show that in both the public and private sectors there have been exceptional one-off increases in the past year but quarterly wage growth is slowing:
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The growth remains mostly in the private sector – with public-sector wages growing faster only in New South Wales, Queensland and Tasmania – and even in those three states the difference is marginal. By contrast the average wage growth of public servants in South Australia and the mostly commonwealth public servants in the Australian Capital Territory lags well below their counterparts in the private sector:
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The wage growth over the past year across most industries has been faster than inflation but in the March quarter wages in the finance and utilities industries were the only ones to grow faster than prices:
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Wages overall in the March quarter grew 0.8%, which was slower than the 1% rise in inflation.
As I have noted often over the past two years, it is impossible for wages to drive inflation when they are actually rising slower than inflation!
That said, over the past year the 4.1% wage growth is ahead of the 3.6% growth of prices. But the figures also show that this notional increase in real wages will not have been equally felt.
In the 12 months to March the average prices of non-discretionary items (rents, energy bills, petrol, food, etc) went up 4.2%. For those on low and middle incomes who spend more of their income on these items, there will have been little to no increase in real wages.
The biggest improvement will be for those who spend more of their income on discretionary items.
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But even with that, the average growth of real wages is pitiful:
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The mere 0.5% real wage growth over the past year is not even at the level it was during 2013-16 when nominal wages growth kept falling, let alone the stronger growth we had during the mining boom years.
Remember that wages are supposed to grow faster than inflation – it is how living standards grow. But with such weak real wage growth it will take a long time to recover the living standards lost over the past few years.
In March the value of Australians’ wages was equivalent to that in September 2010. In effect you can only buy the same amount of things now with your wage as you could 14 years ago. Or, to put it another way, the average wage now buys 5% less than it did in March 2020 before the pandemic hit.
The good thing is the budget predicts further real wage growth over the next four years. But, even still, the budget papers predict by June 2028 the value of the average wage will only be back to the level it was in 2014.
In effect we have lost 14 years of progress on living standards and, unless real wages grow faster than they did before the pandemic, we shall continue to be that far behind until the middle of next decade.
A wages breakout? Please. If only.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
