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RBA governor Philip Lowe’s mission is wage rises for workers

Reserve Bank of Australia governor Philip Lowe addresses the National Press Club. Picture: Getty Images
Reserve Bank of Australia governor Philip Lowe addresses the National Press Club. Picture: Getty Images

Reserve Bank governor Philip Lowe is on a mission: a wage rise for ordinary Australians.

He calls for patience on a rate hike as he takes what he calls a unique opportunity to get people into jobs and get things growing more quickly.

But if the RBA is too patient and inflation takes off, it will be Australian homeowners feeling the pinch. That is a price Lowe believes is worth paying.

Gone are the days when the RBA board had a union representative, but for a long time now Lowe has been advocating, often passionately the RBA’s third mandate: the economic prosperity and welfare of the people of Australia.

“Getting people into jobs and getting bigger pay rises has huge benefits, both for peoples’ budgets and for society. That’s what we are trying to do,” Lowe said after his National Press Club address in Sydney.

The controversial 2024 signal for a first rate rise is gone. Vagueness is back with a hike plausible this year. And the fact that the RBA’s economists have greatly underestimated growth, inflation and employment is actually good news.

Lowe was also vague on a wages growth figure that would trigger a move on interest rates, previously at least three per cent. There is no rule or even benchmark. The wages price index only reflects base salaries.

Instead the board looks at the internal relationship between prices, wages and productivity.

Lowe’s pitch is to be patient. There are still so many uncertainties in supply chains and in the labour market. Because inflation is not that high at the moment, Australia can wait.

Lowe says that inertia in Australian wages is one reason there is not the sustained inflation emerging in the US and the UK. Aggregate wages are hemmed in by multi-year enterprise agreements and public sector policies.

Australia is 'closer to full employment and achieving the inflation target': Philip Lowe

Asked if he saw structural problems in the labour market, he flipped the question on its head.

“There is inertia in the system, is that a problem or a positive? In a way inertia in the system is positive, because it allows us to take more time.

“We are on the cusp of this historic milestone, getting unemployment down. If we can test how far we can get unemployment rate down without having inflation problem in the country that is worth doing,” he said.

Yet what if inflation does gets out of hand, enough to damage the economy?

Lowe admits the pandemic has made forecasting problematic.

“I see the risk of that to be very low,” Lowe said firmly. “I’m not worried about inflation getting out of control and this is one reason why the board is prepared to be patient.”

If it’s faster than that, Lowe says the RBA can respond. And he is comfortable with mortgage holders being exposed to a hike in interest rates.

The household sector has low debt, stimulus savings are high and many borrowers have buffers.

“When interest rates go up this the household sector can be quite responsive to it” he said.

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Original URL: https://www.theaustralian.com.au/business/economics/rba-governor-philip-lowes-mission-is-wage-rises-for-workers/news-story/c720869bfd223bd4ff6e1ed347f16d83