Real wages in Australia continue to plunge but the RBA still falsely claims that wage pressure justifies interest rate hikes

The RBA governor has consistently sought refuge in claims that wage pressures in Australia are building and justify the central bank rate hikes – 9 consecutive increases since May 2022. The RBA has chosen to seriously mislead the Australian public on this issue and when confronted with publicly-available data that justifies that conclusion they claim they have unpublished data that shows a wages problem that is pushing inflation. They won’t publish that data, just as they won’t tell us what their secret meetings with bank traders a few weeks were about, except we saw profit taking from the banks increase immediately after the meetings. Today (February 22, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the December-quarter, which shows that the aggregate wage index rose by 0.8 per cent over the quarter and 3.3 per cent over the 12 months. Last week, we learned that employment growth had declined for the second consecutive month, while real wages continue to contract. Says a lot about mainstream employment theory that predicts real wage cuts will increase employment. This is the seventh consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. While corporations continue to gouge profits, the RBA, like the schoolyard bully, has singled out some of the most disadvantaged workers in our society (low income earners paying of housing loans) and using them in their relentless push of mainstream ideology. This is a huge problem.

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Strong US labour market results – further evidence that mainstream monetary theory is flawed

Well, things are getting interesting in the US. The Federal Reserve started hiking interest rates in April 2022 and its decisions are underpinned by an theoretical framework that suggests the unemployment rate is above what it thinks is the natural rate (the rate where inflation is stable). So the rate hikes are meant to slow spending and increase the unemployment rate and cause price setters to stop accelerating prices up. Except the data isn’t obeying the theory and inflation is falling despite the rate hikes rather than because of them. This is another demonstration of how flawed the dominant mainstream economics has become. Last Friday (February 3, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2023 – which revealed on-going and very robust employment growth, rising participation and falling unemployment. These are good signs for American workers. Further, as inflation is now in decline, most sectors recorded both modest nominal wages growth is some real wages growth – another virtuous sign. The latest data is certainly not consistent with the Federal Reserve type narratives. The point is that the labour market is not behaving at all like the assumed model deployed by the Federal Reserve.

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Inflation has peaked, the supply side is recovering, and the interest rate rises were for what?

So the IMF has come late to the transitory inflation party. What was obvious months ago is now at the forefront of IMF forecasts. Better late than never I suppose. It is becoming clear that most indicators are still not predicting a major demand-side collapse in most nations. Growth has moderated slightly and the forward indicators are looking up. At the same time, the inflation data around the world is suggesting the price pressures have peaked and lower inflation rates are expected. Real wages continue to fall, which means that the inflationary pressures were not being driven by wages. So no wage-price spiral mechanism at play. And PMI data and related indicators (such as shipping costs, etc) suggest the supply constraints which drove the inflationary pressures are easing. So has all this been the work of the interest rate rises imposed on nations by central bankers (bar Japan)? Not likely. The rising interest rates and falling inflation are coincidental rather than causal. Which means the damage to low income debt holders and the bank profits boom from the higher rates was for what?

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US labour market is a sort of holding pattern – declining but slowly

Last Friday (December 2, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2022 – which suggested that the US labour market showed signs of slowing further, with payroll employment growing by just 263,000 net jobs. The labour force measure showed employment and labour force growth turning negative as the participation edged down. The result was that the official unemployment rate remained largely unchanged – with both the demand and supply side falling in proportion. The quit rate is stable which suggests that the US labour market is in a sort of holding pattern – slowing weakening but not consistent with the Federal Reserve type narratives. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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Australia – wage data shows real wages continue to decline for the sixth consecutive quarter

Today (September 16, 2022), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the September-quarter, which shows that the aggregate wage index rose by 1 per cent over the quarter and 3.1 per cent over the 12 months. There was a major discrepancy between the private sector (1.2 per cent for the quarter) and the public sector (just 0.6 per cent), which reflects the harsh wage caps that the federal and state governments have in place that are undermining the well-being of public employees. While there has been some pickup in the pace of nominal wages growth, the fact remains that workers have endured another quarter of real cuts to the purchasing power of their wage. This is the sixth consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future.

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US labour market – shows further signs of slowing

Last Friday (November 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2022 – which suggested that the US labour market showed signs of slowing further, with payroll employment growing by just 261,000 net jobs. The labour force measure showed employment and labour force growth turning negative as the participation edged down. The result was that the official unemployment rate rose by 0.1 points to 3.7 per cent. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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US labour market – weaker but employment growth remains positive

Last Friday (October 7, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2022 – which reported a total payroll employment rise of only 263,000 jobs (further slowdown) and a drop (0.2 points) in the official unemployment rate to 3.5 per cent. Total labour force survey employment rose by just 204 thousand net (0.13 per cent), while the labour force declined by 57 thousand net (0.03 per cent) as a result of the decline in the participation rate of 0.1 points to 62.3 per cent. 4. As a result (in accounting terms), total measured unemployment fell by 261 thousand to 5,753 thousand which is why the unemployment rate fell by 0.2 points. However, while the unemployment rate fell, the combination of weakening employment growth and falling participation is a sign of a faltering labour market. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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Musicians should be paid at least a socially inclusive minimum living wage

It’s Wednesday and I am now ensconced in Kyoto, Japan for the months ahead. I will report on various aspects of that experience as time passes. Today, I reflect on a debate that is going on in Australia about the situation facing live musicians. Should promoters be able to employ them for poverty wages including ‘nothing’ while still profiting or should they be forced to pay the musicians a living wage. You can guess where I sit in the debate.

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US labour market showing further signs of slowdown

Last Friday (September 3, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2022 – which reported a total payroll employment rise of only 315,000 jobs (a major slowdown) and an official unemployment rate rose 0.2 points to 3.7 per cent. The participation rate also rose (somewhat reversing last month’s decline) and the broad labour underutilisation rate (U6) rose by 0.3 points, largely due to the rise in unemployment. The other interesting aspect of this data is that real wages continued to decline in all industry sectors – they have systematically fallen each month since March 2022. I note some commentators are trying to claim that wage pressures are now pushing inflation. That conclusion is untenable given the data. The US labour market is still producing employment but it is hardly booming. Further, most of the net jobs created since the pandemic have gone to workers in occupatinos that pay above-median earnings.

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Elites using monetary policy to deal with paranoid fears that power might shift towards workers

What a world we live in where we are snowed with propaganda from the elites about how the only way forward is that we accept “pain” or “sacrifice” to prevent some inflationary catastrophe from accelerating out of control and that if workers dare seek some cost-of-living redress as corporations go for broke in their margin push, then the pain the policy makers will inflict will be greater. The annual gathering of the elites at Jackson Hole in Wyoming over the last days has been one of those ‘can you believe this lot’ moments. First, we had the US Federal Reserve boss almost joyfully telling Americans that he will inflict pain on them because “these are the unfortunate costs of reducing inflation”. At the same event, the ECB Board member Isabel Schnabel told the gathering that the central banks had to inflict higher unemployment rates to control inflation to stop wages getting driven by inflationary expectations. And then we look at wages growth in Europe and see that real wages are in free fall (dropping 5.9 per cent in the June-quarter 2022).

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