The word “gaslighting” is wildly overused these days. But there’s no other word for what the Reserve Bank and its governor Philip Lowe are doing to Australian households on wages.
After the bank’s decision yesterday to lift interest rates by another 0.25 points to address Australia’s — by international standards moderate — inflation problem, Lowe released his normal post-meeting statement again explaining his determination to fight inflation. And he said this about wages:
Wages growth is continuing to pick up from the low rates of recent years, although it remains lower than in many other advanced economies. A further pick-up is expected due to the tight labour market and higher inflation. Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.
This was the first time Lowe has mentioned a wages-prices spiral in the current cycle of rate tightening — in language implying it was a real threat to be guarded against. He went on to claim “people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic.”
What fantasy world, what alternate Australia, are Lowe and his executives and the RBA board living in? It was an extraordinary and scary admission of just how out of touch the architects of monetary policy really are from the lived experience of working Australians.
Wages have been stagnant for a decade in Australia, and they entered the current bout of rising inflation with real wages having barely shifted since 2013. Indeed, the RBA used to be one of the bodies that kept pointing that out.
Real wages then fell 3.5% in the year to June. They’re forecast to fall another 2% this financial year — if the government’s Pollyannaish wage growth forecasts come true. That means households will have lost more than one dollar in every 20 — hardly the “gaining higher wages” Lowe is talking about. But the RBA appears completely uninterested. And to now start talking about a wages-prices spiral is an insult to every household doing it tough with lower real incomes and higher interest rates.
In a 2000-word speech at the RBA board dinner last night, Lowe went on:
At our meeting today we discussed the damage that high inflation does to people; it is a scourge. High inflation devalues your savings. It worsens inequality in our society and it undermines our living standards. It hurts us all by impairing the functioning of our economy. It is for these reasons that the Reserve Bank Board will make sure that this episode of high inflation is only temporary.
Did he mention wages at all? Did he reflect on what wage stagnation and then real wage cuts have done to households? He mentioned wages precisely once in the entire speech.
Lowe and his fellow board members opining about worsening inequality and living standards and warning of a wages-prices spiral, while apparently oblivious to wages collapsing, is exactly the stereotype that populists love to paint of economic policymakers — out-of-touch elites.
Maybe during its deliberations yesterday Lowe and the board thought they were back in early 2013, when the RBA lifted the cash rate 0.25% to 2.85%. Inflation was 2.5%, the Aussie dollar was trading above parity and crushing the life out of the economy, while the wage price index was 3.4% — a level unseen ever since.
Now WPI is 2.6%, with the RBA and Treasury insisting it will go higher, rapidly.
This is where the gaslighting comes in. Having once lamented wages growth with a two in front of it, Lowe now wants us to believe WPI in the high twos is good wages growth and workers should be grateful if they can get 3%. Which means continuing real wage cuts due to externally generated supply factors and businesses using inflation as a cover to increase profits.
And it will be worse for low-paid workers. We know that, without government intervention, low-paid workers will have even lower wage growth outcomes than the rest of us. But that’s one inequality that apparently doesn’t worry Lowe.
As for when households might see decent enough real wages growth to recoup the level of income they were receiving in mid-2021, they’ll probably have to wait until the 2030s. It’s a comforting thought, isn’t it, that you might be a decade older before you have as much spending power as you did last year. Be grateful.
If only workers could live in Lowe’s fantasy land where wages could keep up with prices. They might stand a chance of not going backwards quite so quickly.
