Wage growth needs to be “around 4%” to drive inflation sustainably within the central bank’s target range, which will create the conditions for interest rates to riseReserve Bank of Australia (RBA) board member and academic Ian Harper said in an interview with MNI on Thursday.
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“Wage growth of around 4% should create 1.5% labor productivity growth and drive inflation sustainably to the midpoint of the RBA’s 2%-3% target.”
“Getting labor productivity growth up to this level is problematic in the short term.”
“Demand is growing strongly, and supply is becoming more limited, so one would expect nominal wage growth to pick up sometime soon. At least, that’s what history would suggest.”
“The trimmed average inflation is at 2.6%. The RBA has forecast it to rise to 3.25% this year before settling at 2.75% until June 2024. For June 2024, the RBA forecast is for wages to grow at 3.25%.”
When asked about the inflationary impact of the Russian-Ukrainian conflictHarper said:
“While this would result in a short-term increase in oil prices, this is a relative price increase and not an overall price increase.“.
“Of course, one can trigger the other if there is an increase in expected long-term inflation. So far, those expectations remain anchored at 2.5%, as evidenced by long-term index-linked bond prices as well. as in the surveys. It’s early days, but energy price hikes have yet to translate into persistent increases in the price level across the board.”
Source: Fx Street
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