https://thenewdaily.com.au/opinion/2022/03/26/inflation-cost-of-living/
"...It promises to be big again next week, featuring in the budget argy-bargy, and then running strong all the way to the looming federal election.
“Cost of living” automatically comes with the prefix “soaring” or at least “rising”. It is universally reported as a terrible thing.
But while nobody seems to want the cost of living to be higher, it is official policy to push inflation higher than it has been for a decade.
Bit tricky to have one without the other.
At the government level, it’s rather like saying we want Australians to have higher living standards at the same time as suppressing their real disposable income, which is what the Morrison government has generally been doing in the areas where it can affect wage rises.
At least the Reserve Bank is consistent. The RBA doesn’t pretend there’s a difference between higher inflation and the rising cost of living.
The RBA wants inflation to be higher. It wants the higher cost of living to force workers to demand bigger wage rises, not the two-point-something pittance they’ve been swallowing for nearly a decade.
Governor Philip Lowe is hoping the present spike in headline inflation will cool down to sit nicely around 2.5 per cent.
The idea is that while petrol prices, say, jump and result in higher inflation this year, if they remain at that higher level, they don’t increase inflation next year – inflation falls as this year’s rise drops out of the numbers.
In the meantime, if the present spike galvanises workers’ desire for higher wages, that will be a good thing, what the RBA really wants.
The falling unemployment rate should be making it easier for workers to do an Oliver Twist – “Please, sir, I want some more” – yet a decade of low wage and inflation expectations is hard to shake, both for employers and employees.
The governor spelt out some of the pain of substandard wages growth this week at a Walkley Foundation lunch.
“The inflation rate at the moment is 3.5 per cent and will probably go up to 4.5 per cent, who knows, depending on what happens with oil prices,” Dr Lowe said.
“Wages are maybe going up high twos, let’s say three, and inflation is 4.5 per cent – that’s a real wage cut of 1.5 per cent, so that will obviously affect people’s budgets.”
As usual, Dr Lowe ignored the impact of tax and thus underestimated the extent of the real wage cut in his example.
Everybody does, despite The New Daily regularly explaining the mistake.
In Dr Lowe’s example of 4.5 per cent inflation and a 3 per cent wage rise, the take-home pay of someone on the median wage would go backwards by a bit more than 2 per cent.
The disposable real income of someone on $90,000 would go backwards by 1.9 per cent.
Which is why a government that actually cared about the impact of inflation would be doing what it could to push for higher wages instead of suppressing them.
It would be making submissions for aged-care workers and nurses to be paid substantially more. It would grant real wage rises to its own employees.
It wouldn’t be rushing to loosen the tight labour market by throwing the doors open to foreign labour.
Dr Lowe did not sound too worried about real wages falling in the next financial year because households built up savings of $250 billion over the worst of the pandemic.
You’re supposed to spend your share of those billions to tide you over wages going backwards – which is fine if you have a worthwhile share of the billions.
Unfortunately, while on average we’re rich, several million Australians aren’t and don’t have fat savings. That’s the way averages work.
Add the housing crisis pushing up rents and people who aren’t rich suffer higher cost-of-living increases than most. ..."
" ...That will be painful for employers not prepared to pay more.
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