Reserve Bank of Australia governor Phillip Lowe has invoked memories of the 1970s, warning wage growth must be restrained to contain Australia’s surging inflation.
In the 1970s, Lowe said last week, “we got into trouble because wages growth responded mechanically to the higher inflation rate”. Now, with inflation above 5%, and tipped to reach 7% by the end of the year, he wants want people to keep in mind an “anchoring point” for wage growth of 3.5%.
That 3.5% represents the central bank’s long-standing judgement that wage growth equal to the RBA’s ideal inflation target (2.5%) plus productivity growth (typically more than 1% a year, currently above 2%) is economically sustainable.
