New Australian inflation measures help us dig deeper into distributional consequences

On November 11, 2020, the Australian Bureau of Statistics published a very interesting new experimental dataset – Non-Discretionary and Discretionary Inflation – which was derived from the standard Consumer Price Index data. It provided us with new insights and a richer knowledge of the impacts of inflation, particularly in distributional terms. Last month (May 25, 2021), the ABS published a followup article – Measuring Non-discretionary and Discretionary Inflation – which summarised some of the key findings. After receiving feedback, the ABS has refined the data series and will publish them on an on-going basis from the September-quarter 2021 as part of the “regular quarterly CPI release”. This new approach to measuring inflation will help us considerably assess the implication of wage movements on the real living standards of Australian workers.

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Culture of austerity distorts business decision-making and we all lose

It is Wednesday and so a few snippets and some Afrobeat. Today, I briefly discuss a rather extraordinary claim by the Governor of the Reserve Bank of Australia that Australian employers refuse to pay higher wages in an environment where the federal government is biases aggregate policy towards surplus creation, even though that strategy was temporarily disabled during the first year of the pandemic. The overall austerity environment has distorted business decision-making to such an extent that firms are now obsessed with cost control and have forgotten that spending equals income and by encouraging a high wage, high productivity culture, their profits rise as well. Win-Win. At present it is lose-lose.

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Rising prices equal an inflation outbreak (apparently) but then the prices start falling again

In my daily data life, I check out movements in commodity prices just to see what is going on. As I wrote recently in my UK Guardian article (June 7, 2021) – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman – the inflation hysteria has really set in. I provided more detail in this blog post – Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman (June 9, 2021). Yes, I stole the title of my article for the blog post if you are confused. The inflation hysteria really reflects the fact that mainstream economists are ‘lost at sea’ at present given the dissonance between the real world data and the errant predictions from their economic framework. They cannot really understand what is happening so when they see a graph rising it must be inflation and that soothes them because rising deficits and central bank bond purchases have to be inflationary according to their perverted theoretical logic. The financial market press then just repeats the nonsense with very little scrutiny. But given many graphs are falling again, this Pavlovian-type response behaviour must be really doing their heads in. I have no sympathy.

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US labour market recovery continues but still 7,629 thousand jobs short from February 2020

Last Friday (June 4, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, continues after a moderate month in April 2021. Payroll employment rose by 559,000 in May 2021 after rising by only 266 thousand last month. The slight rise in unemployment last month gave way to a fall in the unemployment rate by 0.3 percentage points to 5.8 per cent. edged up slightly to 6.1 per cent. The broader labour wastage captured by the BLS U6 measure fell by 0.2 points to 10.2 per cent. The US labour market is still 7,629 thousand jobs short from where it was at the end of February 2020.

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Manufacturing growing strongly in the UK as jobs fall in Australia with the fiscal cuts

It is Wednesday so a blog lite day for me. The next part of this week is a bit up in the air for me after the Covid outbreak that resulted from a breach of quarantine in Adelaide has spread to Melbourne and looks a bit ugly. Fingers crossed that I can get back home to Melbourne tomorrow. Today I briefly review the latest payroll data from the Australian Bureau of Statistics, which shows that despite all the bluster from the Federal government to the contrary, their fiscal retreat in March is now costing jobs, as predicted. I also examine the latest production data from the UK, which should provide good news for British manufacturing workers. And finally, we have a little birthday celebration with some singing.

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Australia – wages growth remains flat with no household consumption boom in sight

On Wednesday last week (May 19, 2021), the ABS released the latest – Wage Price Index, Australia – for the March-quarter 2021. The WPI data shows that nominal wages growth remains suppressed and workers were able to glean only the most marginal real improvement in purchasing power. Public sector workers endured real wage cuts. The public sector is clearly not demonstrating leadership with their ridiculous wage freezes and wage caps stifling wages growth not only in the public sector but also via the spillover effects to the private sector. Most sectors went backwards in real terms and it was only the annual minimum wage adjustment that saw gains in some sectors – militating against any narrative that suggests that the market is driving inflationary pressures. Not even close.

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We need trade unions to grow again

It is clear that the Reserve Bank of Australia (RBA) management is at odds with the elected Federal Government over the current state of the economy and what needs to be done to get through the COVID-19 pandemic. The Federal government is about to significantly wind back its fiscal stimulus, which although was insufficient at the outset, did help reduce the damage that the health responses to the pandemic caused (lockdowns, etc). The Government has the view that the private sector will now rebound quickly especially as the vaccination process has begun. The RBA though is clearly not convinced and its senior officials are wont to point out (regularly) that growth will struggle for years unless the stimulus is maintained and the government promotes an environment where wages can grow more quickly. The RBA clearly blames the Government for the record low growth in wages given the penchant of the latter to impose wage freezes and wage caps on public sector workers, which spill over into poor private sector outcomes. And that is quite apart from the damage that Government industrial relations legislation has done to the capacity of unions to gain wages growth for workers. The chances that we will break out of this malaise are close to zero. The Government is anti-union and anti-wages growth. It thinks that suppressing wages growth to historically record lows and further attacking the unions, will drive the wage share down even further (as the profit share rises). And, of course, the funding of the conservative political forces largely comes from the beneficiaries of these trends. For the vast majority of Australians the situation gets worse. Our real incomes stagnate and to maintain consumption levels we have to borrow more, even though household debt is at record levels in relation to disposable income. It is not a sustainable future but the damage will get worse until there is a pushback from the population. And one of the things holding that back is the deplorable state of the Australian Labor Party in electoral terms. We can generalise all this to most nations. The neoliberal score card: Biggest F you can find.

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Real wages in Australia continue to go backwards

Last week, two major wage data releases came out from the Australian Bureau of Statistics. On Wednesday (February, 24, 2021), the – Wage Price Index, Australia – which was followed on Thursday (February 25, 2021) by the latest – Average Weekly Earnings, Australia. The two series are quite different as I note below. Both demonstrate poor wages outcomes in Australia. The ABS reported that Australia “maintained the historically low annual growth rate of 1.4 per cent for a second quarter” and that the data “showed a large proportion of the private sector wage growth came from the continued restoration of hourly wages back to pre-pandemic levels”. In other words, the cuts firms got away with last year were restored, which is a different thing to on-going growth. Private sector grow was just 0.7 per cent and public sector growth was just 0.3 per cent. The overall WPI growth was just 0.6 per cent. The public sector is clearly not demonstrating leadership with their ridiculous wage freezes and wage caps stifling wages growth not only in the public sector but also via the spillover effects to the private sector. With the quarterly inflation in the December-quarter was recorded at 0.22 per cent, real wages thus rose for Australian workers. But if we consider the annual movements private sector wages grew by 1.4 per cent while annual inflation (excluding volatile items) was 1.5 per cent, so real wages fell over the year to December 2020. Further, over the longer period, real wages growth is still running well behind the growth in GDP per hour (productivity), which has allowed profits to secure a substantially increased share of national income.

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Unemployed in Australia forced to live in abject poverty and the business sector thinks that is fine

Last week (February 1, 2021), the Australian Chamber of Commerce and Industry, which represents the business lobby, demanded the Australian government cut the unemployment benefit back to less than $A40 per day but at the same time it also demanded the Government extend wage subsidies to businesses. It is repugnant that the business culture in Australia is so impoverished, that the key business lobby group wants unemployed workers who cannot get a job because there are not enough jobs on offer to be forced to live at income support levels that are well below conventional poverty lines. But, at the same time, it supports businesses putting their own hands out to government for more. It is also stupid. They don’t seem to realise that providing an environment for strong wages growth produces the best conditions for profits. Yet these characters just want to accelerate the ‘race to the bottom’ which is a self-defeating strategy.

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Is the $US900 billion stimulus in the US likely to overheat the economy – Part 2?

The answer to the question posed in the title is No! Lawrence Summers’ macroeconomic assessment does not stack up. In – Is the $US900 billion stimulus in the US likely to overheat the economy – Part 1? (December 30, 2020) – I developed the framework for considering whether it was sensible for the US government to provide a $US2,000 once-off, means-tested payment as part of its latest fiscal stimulus. Summers was opposed to it claiming that it would push the economy into an inflationary spiral because it would more than close the current output gap. Today, I do the numbers. The conclusion is that there is more than enough scope for the Government to make the transfers without running out of fiscal space.

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