High inflation and interest rates underscore need for productive workforce

Stubbornly high inflation and interest rate hikes are rattling investor nerves and underscoring the need for a robust and productive workforce, business leaders have warned.

Stubbornly high inflation and interest rate hikes are rattling investor nerves and underscoring the need for a robust and productive workforce, business leaders warned on Wednesday.

Speaking at The Australian’s BHP Competitive Advantage Boardroom Series lunch, BHP Australia president Geraldine Slattery said high inflation was impacting BHP most in the price it had to pay for labour.

She emphasised that the Same Job Same Pay legislation proposed by the Albanese government was adding to the pressure.

“Inflation is something that is impacting individuals, it’s impacting households, it’s impacting businesses and it’s impacting policymakers,” she said.

“We see that mostly in the cost of labour … from the perspective of the resources sector, where the cost of labour is incredibly high.”

Ms Slattery said the difficult environment underscored the need for companies to become more competitive and workers more productive. She lamented that the government’s proposed IR legislation was compounding the challenge for business and adding a drag to investment.

“What’s been proposed not only adds costs, but it crucially breaks the link between the cost of labour and productivity.”

The comments come after the Reserve Bank on Tuesday signalled interest rates may have to go higher, even after hitting mortgage-holders with a 13th rate hike, declaring the battle against inflation was not yet won.

With Christmas looming, the base interest rate was now at 4.35 per cent, the highest in 12 years.

In the statement accompanying its decision, RBA governor Michele Bullock acknowledged inflation peaked last year but said that while the economy was slowing, inflation was “still too high”.

Ms Bullock said the bank would do “what is necessary” to return inflation to its 2-3 per cent target rate. She said that if high inflation became entrenched in people’s expectations it would be much more costly to tackle and would involve “even higher interest rates” and a worse outcome for the economy.

Lendlease Australia chief executive Dale Connor acknowledged the damaging effect inflation was having, saying the business and investment community was longing for a time when they could have some certainty on the cost of capital.

“It’s all about certainty (and) when can we get to that point of certainty?” he asked.

“Whether it comes down in a month or year. Everything that we do is about capital.”

He said investment capital was piling up on the sidelines “waiting for that moment when rates will peak” and boards were waiting for the same to start leasing office space again. “That revenue side as well has been affected by the escalation of inflation uncertainty.”

While commercial property values have, to an extent, been impacted by the higher interest rates environment, a 10 per cent bounce in residential property prices since February has returned home values back to pandemic peaks. This is complicating the job of the RBA.

BetaShares chief economist David Bassanese said Australia would likely have a reprieve of a few months before the RBA would consider hiking rates again.

“I don’t think they will go as early as December,” he said, given the central bank would want to see another set of inflation data in January before making a decision.

“It will depend now on the Q4 CPI, which we get at the end of January, which means the next opportunity to raise rates will be February.”

The RBA is trying to get the inflation rate, currently at 5.4 per cent, within its target rate by the end of 2025.

“If people expect inflation to be 3 to 4 per cent going forward they are going to demand higher wages, businesses are going to feel more inclined to be able to increase their prices by that – so that’s why ultimately the RBA can be patient to a degree but can’t wait forever,” Mr Bassanese said.

A string of data over recent weeks suggested the economy was proving resilient to the 12 rate hikes delivered from May last year, including an unemployment rate of 3.6 per cent that has barely budged from near 50- year lows.

“It is hard to see what a November rate hike achieves other than making it harder for Australians to pay their mortgage in the lead-up to Christmas,” Deloitte Access Economics partner Stephen Smith said.

Originally published as High inflation and interest rates underscore need for productive workforce