Just because he was wrong about inflation a year ago, it doesn’t mean Reserve Bank governor Phil Lowe is wrong about it now.
And it’s now more than ever that the central bank needs the independence to make fearless assessments of the policy risks that lie ahead. Even if those assessments aren’t popular with the federal government.
Lowe is doing nothing more than his job in raising the alarm about what can add further pressure to inflation.
Some in government have clearly taken his warnings over wages and workplace flexibility as an attack on the government over its industrial relations bill and its lack of focus on productivity. But the reprisals against Lowe by two cabinet ministers – and calling his views “rubbish” – have further inflamed tensions between the business community and the Albanese government.
It is open conflict. This is a far cry from September and the jobs and skills summit when the Prime Minister was heralding a fresh era of consensus-run government in co-operation with business. That promise of a new accord between government, the unions and business appears doomed.
Business leaders have responded forcefully not just to the industrial relations reforms but now the attempt to marginalise Lowe in pointing out the obvious. Few would agree politicians should be taking pot shots at the RBA for uncomfortable judgments, and that Lowe is essentially right.
“It is deeply unfortunate that various political figures have chosen to attack the governor of the Reserve Bank for again stating what is economically obvious,” said the Australian Industry Group’s Innes Willox. “As much as we might wish that steep wage increases have no costs, the reality is that excessive wages growth will push up interest rates, unemployment and underemployment.”
Sure, politicians can grumble but in the same breath they should acknowledge the bank’s independence to make judgments about policy settings which have implications for the economy, inflation and interest rates. Wages are well within the RBA’s purview to comment on. In fact they may soon become a vital component of the inflation puzzle.
Economist Chris Richardson made the point last week that the solution to the real wages crisis is bringing inflation down rather than lifting wages up to match it.
This is Lowe’s point as well, lest the economy be plunged into a wages price spiral.
Whatever good will may have existed at the beginning of the Albanese term of government, the promise of a new order governed by consensus and working together with business appears to have shattered.
Hypocrisy, bad taste and other follies of 2024
On New Year’s Day 2024, morale was relatively high since the Year of the Dragon was expected to usher in a time of rational thinking. Not quite how it worked out.
Dutton nuclear plan ‘economic madness’
Jim Chalmers has fired the first salvo in what is likely to be a sustained campaign of economic attacks by Labor on Peter Dutton’s nuclear plan, to be driven by the Treasurer himself.