The country’s most powerful banker is convinced inflation in Australia will not rise despite global supply chain pressures, but he had a clear warning for borrowers.
Reserve Banking Governor Philip Lowe said Australian workers, unlike the US, were more willing to return to customer-facing jobs due to lower Covid infection rates.
This meant that consumer price increases in Australia, compared to the US, would be limited as demand for services increased this year after the lockdowns ended.
“The result is a significant shock to the labor supply in the United States,” Dr told the Australian Business Economists luncheon on Tuesday.
That has not been the case in Australia. These developments are relevant because strong growth in demand for services will require a significant increase in the number of hours worked.’
While the Reserve Bank promises to keep interest rates at a record low of 0.1 percent until at least 2023, Dr. Lowe borrowers not to be complacent as debt levels grew much faster than wages.
The country’s most powerful banker is convinced inflation in Australia will not rise despite global supply chain pressures, but he had a warning for borrowers. Australian workers were more willing to return to customer-facing jobs due to lower Covid infections (pictured is cafe owner in Sydney’s Surry Hills)
While the Reserve Bank promises to keep interest rates at an all-time low of 0.1 percent through 2023, Governor Philip Lowe warned borrowers not to be complacent as the debt burden grew much faster than wages.
“Households in Australia already have higher debt relative to their income,” he said.
‘That’s problematic. We try to get interest rates up over time, if we succeed, interest rates will go up.
“People who borrow these days should remember that.”
In the year to October, median Australian home and unit prices rose 21.6 percent, the fastest annual rate since 1989, CoreLogic data shows.
The RBA is more concerned about reducing unemployment, even as real estate prices are rising at 12 times the pace of wages.
Staff shortages in some sectors are driving up wages.
But dr. Lowe also expected the eventual reopening of Australia’s borders for the first time since March 2020 would ease wage pressures in the hospitality industry as international students and backpackers returned.
In the year to October, median Australian home and unit prices rose 21.6 percent, the fastest annual rate since 1989, CoreLogic data shows. Property prices are rising 12 times wages (pictured is an auction in Strathfield in Sydney’s west)
“If the labor supply is increased, it will take some of the pressure off some of the hot spots in the labor market,” he said.
Even without skilled migrants, wage growth is still weak, with wage levels rising just 1.7 percent in the past fiscal year.
The wage price index has remained below its long-term average of three percent since mid-2013 and the Reserve Bank of Australia did not expect wage increases to return to that level until 2023.
General inflation is also relatively subdued in Australia, growing 3 percent in the year to September.
This was still within the Reserve Bank of Australia’s target of two to three percent, despite a 24 percent annual increase in petrol prices to new all-time highs.
By comparison, the U.S. consumer price index for October was 6.2 percent, the highest since December 1990, the Bureau of Labor Statistics revealed.
dr. Lowe admitted that Australians could be missing out on desirable consumer goods as global supply chains couldn’t keep up with changing demand.
“Modern supply chains have been calibrated to operate on a just-in-time basis – this lowered the cost of holding inventories, but it does mean that the global manufacturing system is not well suited to a sudden, dramatic shift in demand,” he said.
“Today the main problem is not a diminished ability of global producers to produce goods, but rather an inability to respond quickly enough to strong global demand.”
The wage price index has remained below its long-term average of three percent since mid-2013 and the Reserve Bank of Australia did not expect wage increases to return to that level until 2023 (pictured is an Australia Post employee at Melbourne’s Sunshine West)
The Reserve Bank is still concerned about global price pressures, and the minutes of its November meeting indicate that the matter has been discussed.
“Members noted that capacity constraints in global goods markets were more intractable than initially thought, and that price pressures had increased,” the report said.
The RBA noted that global supply pressures in late 2021 were greater than in early 2020 at the start of the pandemic, as a shortage of semiconductors hampered the production of automobiles and electronic equipment.
“The continued strength of global demand for goods put pressure on supply chains to an extent not apparent in the earlier stages of the pandemic,” it said.
“Supply of semiconductors, household goods and building materials struggled to keep pace with demand growth; disruptions in globally interconnected supply chains and bottlenecks in transportation networks had exacerbated the situation.”