Grim warnings of a US-style inflationary surge in Australia – with a consequent rise in home loan rates – ignore key differences between the two economies.
Breathless commentators have been quick to conclude that the surge in US inflation – which dashed to an annual rate of 7 per cent in December, the fastest pace clip in nearly four decades – will inevitably spread to Australia.to combat rampant inflation which, of course, means that banks will lift their home loan rates.But more measured observers believe that these grim prophesies of rampant inflation and rising interest rates are premature.
In the first place, the starting position is extremely different. Unlike the US, the coronavirus pandemic hit the Australian economy at a time when both inflation and wages growth were at extremely low levels In contrast, Australia’s participation rate climbed to 66.1 per cent last November, just shy of a record high. And it’s likely that people’s clear willingness to re-enter the workforce is helping to ease the pressure on local wages.has drawn attention to is the inertia that is embedded in Australia’s wage-setting processes.
Further, Australian electricity prices, which had been high, have fallen, in contrast to many overseas countries where electricity and gas prices have jumped sharply.
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