Business groups call for wages to be cut as inflation reaches new 32-year high of 7.8 per cent

Business and banking elites are asking workers to take an even harsher cut in real wages after inflation soared to a new 32-year high.

The consumer price index in the year to December soared 7.8 percent, the steepest annual increase since the early 1990s.

With wages rising 3.1 percent, Australian workers are taking a pay cut as higher prices for goods and services are diluting consumers’ purchasing power.

Canstar calculated that the average Australian worker would need a wage increase of $7,178 per year to keep up with the deteriorating cost of living.

Despite this, Australian Industry Group chief executive Innes Willox is fighting moves to give workers generous pay rises, arguing this would only make inflation worse.

“Taming the inflation tiger will require price and wage moderation over the next period,” he said.

His call echoes Reserve Bank of Australia Governor Philip Lowe’s warning in November that workers would have to accept a sharp cut in real wages for inflation to moderate, even though he has a wage package. of $1,076,029.

“I know it’s very hard for people to accept the idea that wages don’t rise with inflation…and people are experiencing a drop in real wages, that’s hard,” Dr. Lowe said.

Although the alternative is more difficult. If we all accept the idea that wages have to go up to compensate people for inflation, it will be painful. So better avoid that.

Canstar has calculated that an Australian with an average full-time salary of $92,030 would need an annual wage increase of $7,138 to cope with inflation that far exceeds wage growth.

Wages are already growing at the fastest pace in almost a decade and the Reserve Bank expects wage growth to reach 3.75% by mid-2023 before reaching 4% by mid-2024 for the first time since 2009.

Australian Industry Group chief executive Innes Willox (pictured) is fighting moves to give workers generous pay rises, arguing this would only make inflation worse.

Meanwhile, headline inflation was expected to moderate to 6.25 percent by June 2023 and 4.75 percent by the end of 2024, but workers would still take a real pay cut.

To counter that, the Labor government of Prime Minister Anthony Albanese is promoting multi-employer bargaining where wage increases are replicated across an entire sector.

This repudiates the corporate bargaining system that debuted in 1993, under a previous Labor government, which was designed to prevent wage increases in a workplace from being automatically copied without productivity improvements.

Prices for some items last year skyrocketed at double-digit rates.

With state borders open again, national vacation costs shot up 13.3 percent for the year.

Gasoline prices last year rose 13.2 percent, after rising above $2 a liter in March when Russia’s invasion of Ukraine triggered sanctions that pushed up world crude prices.

Housing costs last year rose 10.7 percent, while prices for food and non-alcoholic beverages rose 9.2 percent.

Fruit and vegetable prices rose 8.5% following flooding on Australia’s east coast in early 2022, but fell sharply during the last quarter of last year as crop supply shortages were resolved.

His call echoes Reserve Bank of Australia Governor Philip Lowe’s warning in November that workers would have to accept a sharp cut in real wages for inflation to moderate, even though he has a wage package. of $1,076,029.

A more detailed breakdown of grocery items showed a 12.2 percent annual increase in bread and cereal prices and an even more severe 14.9 percent increase in dairy prices.

Electricity prices last year rose 8.6 percent.

With headline inflation well above the Reserve Bank’s 2% to 3% target, home borrowers are widely expected to get another quarter percentage point rate hike in February.

This would take the cash rate to a new 10-year high of 3.35 percent, up from 3.1 percent.

Under this scenario, a borrower with an average mortgage of $600,000 would see their monthly payments increase by $93 to $3,303, from $3,210, as the Commonwealth Bank’s variable rate rose to 5.22 percent from 4.97 percent.