‘Extraordinary setback’ for households as RBA tips wages to plunge further
The Reserve Bank has warned that the poor were likely to feel a greater impact from inflation than others and predicted that real wages would fall below their pre-Covid level.
Governor of the Reserve Bank of Australia (RBA) Phillip Lowe(AAP Image/Joel Carrett)
In its statement on monetary policy, the Reserve Bank has said 2024 would be a crucial time for the economy, but until then wages would continue to be outpaced by inflation.
It said inflation would remain higher than its target range of between 2 and 3 per cent until the end of 2024.
“Higher prices, especially for food and fuel, are likely to impact low-income households in particular (which tend to spend a larger share of their income on these necessary items),” the RBA said.
“While household balance sheets are generally strong and many households should be able to absorb these price increases, others have limited savings buffers and may have to reduce spending elsewhere.
“For some of these more vulnerable households, the impact of price rises will be mitigated to some extent by the indexation of social assistance payments twice per year, though price rises will reduce recipients’ real incomes in the near term.”
IFM economist Alex Joiner said real wages were forecast to get back to as low as they were in 2009, “an extraordinary setback for households”.
ACTU president Michelle O’Neil said the wages spiral that business had forecast had not emerged and June 2024 was too long to wait for growth to exceed inflation.
“This is a downward spiral for living standards,” O’Neil said.
But the RBA said about 60 per cent of companies expected wages growth over the year ahead to be greater than it was now.
It said the removal of the wages cap for Queensland public servants would help.
Offsetting the wage decline, the RBA said unemployment would continue to fall to 3.25 per cent and would not get to 4 per cent until the end of 2024.
The RBA also appeared to indicate that it would be more cautious about interest rate increases when it said it would be seeking to address inflation while keeping the economy on an even keel.
AMP Capital’s Shane Oliver said: Our view remains that RBA rate hikes will slow from here, the cash rate will likely peak around 2.6 per cent either late this year or early next and rate cuts are likely from late next year.”
CommSec’s Craig James said it was clear from the latest quarterly report that the Reserve Bank faces a struggle to get inflation back into the 2-3 per cent target band.
“But crucially the Bank believes that Aussies will hold on to their jobs and keep spending,” James said.
