Australia: Where is the RBA looking for wage growth?
Inflation is running at a brisk pace and is set to pick up further in the coming quarters; supply disruption has been exacerbated by the war in Ukraine and recent floods in Queensland and New South Wales, which will boost fuel and food prices, respectively. The RBA has signalled and displayed a willingness to tolerate an overshoot of their inflation target. In part, this is because raising rates in response to inflationary supply shocks is counterproductive to the RBA’s broader policy objectives of full employment and the welfare of Australians.
What you will learn:
- Inflation has picked up in Australia, and currently sits well above the RBA’s target range. Moreover, core inflation is expected to exceed the target range for the next four quarters.
- While the WPI is the most followed wage measure, it is a relatively narrow and slow-moving metric.
- Accordingly, attention has turned to broader wage indicators. Recent data show a rise in other labour costs relative to the WPI, but the lag between these measures and the WPI is difficult to quantify.