No Evidence of Inflation Taking Off, Says Ian Harper
SYDNEY–According to Ian Harper, a member of the Reserve Bank of Australia’s interest-rate setting board, there is no evidence of a developing wage-price spiral in Australia, and long-term inflation expectations remain stable.
Harper, speaking in an interview with The Wall Street Journal, stated that despite the high inflation in Australia over the past year, there is no indication of wages and prices taking off.
“Inflation appears to have peaked,” Harper said, adding that the current policy settings have been based on this observation. He also mentioned that he does not anticipate any significant changes in the official cash rate, which is expected to remain at 4.10% during the next RBA policy meeting on October 3.
Insights on Inflation and Wages Growth
Harper’s comments follow a period of concern at the central bank, particularly after the minimum wage in the country was raised more than anticipated. In June, Australia’s Fair Work Commission announced a 5.75% increase in the minimum wage, creating some uncertainty about inflation and wages growth.
Former RBA Governor Philip Lowe had previously called for wage restraint, emphasizing the need to maintain recent improvements in the job market. However, his stance was met with resistance as lawmakers expressed concerns about potential inflationary pressure and higher interest rates.
Harper, who is also the dean of Melbourne Business School, believes that the current situation does not warrant an increase in interest rates and that the country’s economy remains stable.
A Closer Look at Australia’s Inflation and Wage Growth
The Reserve Bank of Australia (RBA) has steadily increased the Official Cash Rate (OCR) by 400 basis points since May 2022, and there are indications that further interest rate hikes may be necessary.
In a recent interview, economist Harper discussed the wage agreements in large enterprises, highlighting that they have been mostly modest in size. These agreements anticipate small wage increases in the coming years.
However, Harper also pointed out that while wage growth does not currently pose an immediate risk to inflation, Australia’s weak productivity could be a concern. Over the past three years, there has been no productivity growth in the country, following a decade of sluggishness in this area.
This lack of productivity growth has drawn attention to the rising labor costs that companies face without the offset of higher productivity. Economists have expressed concerns that this situation could lead to higher inflation and interest rates if not addressed.
Harper emphasized that the outlook for inflation is more likely to be influenced by the productivity issue rather than wage growth. He believes that even if inflation moves higher, it will likely not be due to wages.
On a related note, Australia’s annual inflation rate surged to 5.2% in August, up from 4.9% in July. The increase was largely attributed to rising gasoline prices, which have continued to climb in recent weeks.
Harper acknowledged the possibility that headline inflation has peaked and that core inflation may have also reached its peak. However, uncertainties remain about how quickly inflation will decline, including uncertainties surrounding fuel prices.
As the situation unfolds, it will be important to monitor both productivity and wage growth to assess their impact on inflation and interest rates.