The Reserve Bank of Australia governor says it would be a “welcome development” if wages growth began picking up in Australia because it would create a stronger sense of “shared prosperity” among workers.
In a not-so-subtle message to employers, and as workers endure their longest period of declining living standards in more than 25 years, Phil Lowe has said wages should ideally begin growing on the back of stronger productivity growth, but even if productivity growth were to be around the average of recent years, “a faster rate of wage increase should still be possible” now.
He also reminded employers and policymakers that rising wages would be necessary to return inflation to normal levels, and to lift the economy out of its ultra-low interest rate funk.
With households now worse off than they were six years ago, and with large businesses enjoying record profits, workers would benefit from a lift in real wages, he said.
“A lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2-3% medium-term inflation target,” he said.
“Stronger growth in real wages would also boost household incomes and create a stronger sense of shared prosperity.”
Speaking at the A50 Australian Economic Forum in Sydney on Thursday evening, Lowe warned against assuming the RBA would begin lifting interest rates when other advanced economies, such as the United States, started lifting theirs significantly.
He said circumstances in Australia were different because the economy was still a long way from what could be considered full employment, and the RBA’s central scenario for inflation was for it to remain below the midpoint of the medium-term target range for “the next couple of years”.
“We expect to make further progress in reducing unemployment and having inflation return to the midpoint of the target range [and] if we make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up,” he said.
“[But] the Reserve Bank board does not see a strong case for near-term adjustment in monetary policy,” he said.
The RBA will release its latest quarterly statement on monetary policy on Friday. It will be the first such statement since November.
Lowe said the RBA’s forecasts for gross domestic product growth and inflation were little changed from three months ago.
“The RBA’s central scenario remains for the Australian economy to grow at an average rate of a bit over 3% over the next couple of years,” he said.
“This outlook has not been affected by the volatility in the stock market over recent days. Indeed, it is worth keeping in mind that the catalyst for this volatility was a reassessment in financial markets of the implication of strong growth for inflation in the United States.
“For some time, many investors had been working under the assumptions that unusually low inflation and unusually low volatility in asset prices would persist, even with above-trend growth at a time of low unemployment.
“A reassessment of these assumptions now appears to be taking place against the backdrop of strong economic conditions globally.”