Wages warning puts Labor in danger zone on rates
The ninth rise in official interest rates by the Reserve Bank of Australia to 3.35 per cent has put the Albanese government in the danger zone on the issues of falling house prices and rising costs of living. Anthony Albanese and Jim Chalmers can rightly claim that inflation is a global phenomenon and interest rates started their dramatic rise before Labor took office. But Peter Dutton and his team are starting to hone the message that in retrospect should have played a much bigger part in the Coalition’s federal election campaign last year. That message is that interest rates will always be higher under Labor and households will always pay more.
Opposition Treasury spokesman Angus Taylor made the point in question time on Tuesday that the last time interest rates were this high was when Labor was last in government. In response, the federal government has accused the opposition of reverting to the “Tony Abbott playbook” and becoming the “No-alition” for refusing to co-operate on Labor’s preferred agenda of the Indigenous voice, the safeguard mechanism and funding for a national reconstruction fund.
The Opposition Leader clearly has found his comfort zone, continuing to press the government on the issues that are front of mind for voters. These include cost-of-living pressures and energy prices. Much of this can be dismissed as political theatrics. But there is a deadly serious edge that was again highlighted by Reserve Bank governor Philip Lowe in his statement on the RBA’s monetary policy decision on Tuesday. Dr Lowe repeated his warning, first made in November, about the dangers of a wage-price spiral that could feed inflation and force the RBA to raise rates more aggressively, a situation that happened in the 1970s. A bulletin issued by the RBA in September said the current situation had many differences to the 1970s, when a wage-price spiral did emerge. It said central banks were now focused on ensuring inflation remained low, medium-term inflation expectations remained anchored and structural changes in the labour market reduced the likelihood that wages and inflation chased each other. “Nonetheless, authorities need to be mindful of the risk of a wage-price spiral,” the RBA bulletin said.
Since then Labor has reintroduced a system of industry-wide bargaining that trade unions are using to push for collective bargaining across major sectors of the economy. Employment and Workplace Relations Minister Tony Burke told parliament on Tuesday the government was proud of its achievements in getting national employers back to the negotiating table and wages moving. He is planning to introduce a new tranche of industrial relations reforms later this year to rein in less regulated work practices in the gig economy.
In his statement, Dr Lowe said: “Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.” The RBA board said it expected that further increases in interest rates would be needed in the months ahead. Concerns about a wage-price spiral feed into the Coalition’s narrative that costs are higher under Labor. Mr Dutton told the party room on Tuesday: “What we’ve seen from Anthony Albanese and the Labor Party in the last eight months is that every economic decision they have taken has contributed to an upward pressure on interest rates.”
The Prime Minister and his Treasurer are working hard to reassure everyone they will not make the RBA’s job more difficult through profligate spending in the upcoming budget. As the pressure continues to build on household budgets, clear frustrations are starting to emerge within government ranks. But Labor is hostage to the RBA’s inflation-fighting agenda. It must listen to the warnings on wages and resist the temptation to make things worse.