If the sharp increase in interest rates we’ve seen leads to a recession, it will be the recession we didn’t have to have.
If the sharp increase in interest rates we’ve seen leads to a recession, it will be the recession wehave to have. The judgement of hindsight will be that the Reserve Bank’s mistake was to worry about wage growth being too high, when it should have worried about it being too low.
So, the obvious question arises: is it good news or bad? Short answer: depends on your perspective. Long answer: keep reading. Second, the slight fall in wage growth slightly increases the squeeze on households’ incomes, making it a little harder for them to keep spending as much on goods and services. The less the demand for their products, the less the scope for businesses to raise their prices.
Over the 11 years to June, consumer prices rose by 33 per cent, whereas the wage price index rose by 29 per cent. If you’re a worker, that’s hardly something to celebrate. This is the “social contract” the rich and powerful have made with the rest of us for letting them call the shots. But for the past decade or more we’ve got nothing from the deal. Indeed, our standard of living has slipped back.
It’s tempting to think that, in the mind of the Reserve, the only function wages serve is to help it achieve its inflation target. When inflation’s below the target, the Reserve wants bigger pay rises to get inflation up. When inflation’s below the target, it wants lower pay rises to get inflation down.
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