Didn't you get that raise?  Maybe you're better off without it

Didn’t you get that raise? Maybe you’re better off without it

Chances are good that the great wave of inflation of 2022 will peak. World prices for everything from freight to oil are well below their peaks, interest rates are starting to slow down the economy a little – finally – and the government appears to be regulating a temporary drop in gas prices. (That would deal an outsized blow to inflation, because gas in general is often the price determinant of electricity.)


So the trend is our friend.

But things would get harder if wage increases got their mojo back. That’s because while things like war and floods and China’s COVID policies can start the engines of inflation, it’s not until inflation has an impact on wages that inflation really persists.

The problem is prolonged when wages chase prices, then prices chase wages, and that spirals out.

The fact that Australia’s wage system was dead when the global inflationary storm hit has its perks. Compared to many others, Australia’s inflation will peak at lower rates, allowing the Reserve Bank of Australia to take its foot off the economy. In fact, we’ve already had one major success: the RBA became the first major central bank in the world to slow the pace of its rate hikes.

In contrast, one of the Federal Reserve Chairs spoke in Australia this week and he spooked markets by saying “we still have a long way to go” before the Federal Reserve halts rate hikes.

drawingRecognition: Dionne Gain

Like it or not, Australia’s sluggish wage growth is one reason official interest rates are likely to peak here earlier and lower than many other places.

You’re not happy to hear this, but it’s probably for the best.

What’s next for wages? Will today’s sluggishness give way to a fast-paced catch-up race in the years to come? After all, the government came to power with the slogan “everything goes up except wages”.


Yet that slogan still holds true, in part because changing the pay system is like trying to spin a supertanker.

The government is trying to do something. But its Secure Jobs, Better Pay Bill is struggling to get through Parliament, in part because independents like David Pocock and Allegraspender are worried it will throw out some babies with the bathwater when it tries to boost wage growth. And even assuming the bill passes Parliament unscathed, it’s far from clear that it will shift the scale all too much.

Though politicians are talking big (their legislation will set wages moving) and corporations are holding onto their pearls (the same legislation will cost the life of your firstborn), the nation’s official forecasters at the Treasury Department and the RBA think the legislation is one such thing or something like that.

Yes indeed. Don’t hold your breath and wait for politicians’ laws to save your standard of living. The Treasury expects wage growth to peak at 3.75 percent in six months, while the RBA puts the peak at 4 percent in 18 months.


And both reckon the purchasing power of your salary package will continue to hurt long after today’s wars and floods have become fish-and-chips wrapping paper.

We need better wages to make up for today’s losses. And the government bill will help workers get back some of the nation’s pie. But while companies have raked in more than their fair share of the national pie over time, that lost piece isn’t nearly as big as many think.

And while the politics of this struggle is seductive, it’s not that helpful either.

It’s an old lesson: higher living standards ultimately come from a bigger pie rather than a bigger slice.

And that means politically charged reforms and the gradual impact of improvements in technology and education. Buckle up. This is a slow way.

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