The nation’s most powerful banker is confident inflation won’t surge in Australia despite globalpressures – but he had a stark warning for borrowers.
Reserve Bank Governor Philip Lowe said that unlike the US, Australian workers were more willing to return to customer-facing jobs as a result of lower Covid infection rates.
This meant consumer price rises in Australia would be contained, compared with the US, as demand this year increased for services following the end of lockdowns.
‘The result has been a significant shock to labour supply in the United States,’ Dr told the Australian Business Economists lunch on Tuesday.
‘This has not been the case in Australia. These developments are relevant because strong growth in the demand for services will require a sharp increase in hours worked.’
While the Reserve Bank is vowing to keep interest rates at a record-low of 0.1 per cent until at least 2023, Dr Lowe warned borrowers not to be complacent as debt levels grew at a much faster pace than wages.
The nation’s most powerful banker is confident inflation won’t surge in Australia despite global supply chain pressures but he had a warning for borrowers. Australian workers were more willing to return to customer-facing jobs as a result of lower Covid infection rates (pictured is a cafe owner at Surry Hills in Sydney)
While the Reserve Bank is vowing to keep interest rates at a record-low of 0.1 per cent until 2023, Governor Philip Lowe warned borrowers not to be complacent as debt levels grew at a much faster pace than wages.
‘Households in Australia already have higher levels of debt relative to income,’ he said.
‘That’s problematic. We’re trying to get interest rates up overtime, if we’re successful interest rates will go up.
‘People who are borrowing today need to remember that.’
In the year to October, median Australian house and unit prices have surged by 21.6 per cent, the fastest annual pace since 1989, CoreLogic data showed.
The RBA is more concerned about reducing unemployment, even as property prices increase at 12 times the pace of wages.
Staff shortages in some sectors are pushing up pay levels.
But Dr Lowe also expected the eventual reopening of Australia’s borders for the first time since March 2020 to ease wage pressures in the hospitality sector as international students and backpackers returned.
In the year to October, median Australian house and unit prices have surged by 21.6 per cent, the fastest annual pace since 1989, CoreLogic data showed. Property prices are increasing at 12 times the rate of wages (pictured is an auction at Strathfield in Sydney’s inner west)
‘If labour supply is increased, then that will take some of the pressure off some of the hotspots in the labour market,’ he said.
Even without skilled migrants, wage growth is still weak with pay levels growing by just 1.7 per cent during the last financial year.
The wage price index has been stuck below the long-term average of three per cent since mid-2013 and the Reserve Bank of Australia didn’t expect pay increases to return to that level until 2023.
Headline inflation is also relatively contained in Australia, growing by 3 per cent in the year to September.
This was still within the Reserve Bank of Australia’s two to three per cent target despite a 24 per cent annual increase in petrol prices to new record highs.
By comparison, the US consumer price index for October stood at 6.2 per cent, the highest since December 1990, the Bureau of Labour Statistics revealed.
Dr Lowe conceded Australians could miss out on desired consumer goods as global supply chains failed to keep up with shifting demand.
‘Modern supply chains are calibrated to operate on a just-in-time basis – this reduced the cost of holding inventories but it does mean the global production system is not well suited to a sudden, dramatic shift in demand,’ he said.
‘Today, the main issue is not a reduced ability of global producers to produce goods but rather an inability to respond quickly enough to strong global demand.’
The wage price index has been stuck below the long-term average of three per cent since mid-2013 and the Reserve Bank of Australia didn’t expect pay increases to return to that level until 2023 (pictured is an Australia Post worker at Sunshine West in Melbourne)
The Reserve Bank is still worried about global price pressures with the minutes of its November meeting revealing this issue was discussed.
‘Members noted that capacity constraints in global goods markets had been more persistent than initially envisaged, and price pressures had broadened,’ it said.
The RBA noted global supply pressures were worse in late 2021 than in early 2020 at the start of the pandemic, as a shortage of semiconductors hampered the production of cars and electronic equipment.
‘The ongoing strength in global goods demand was straining supply chains to a degree not evident in the earlier stages of the pandemic,’ it said.
‘The supply of semiconductors, household goods and building materials had struggled to keep pace with the growth in demand; disruptions in globally interconnected supply chains and bottlenecks in transportation networks had exacerbated the situation.’
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