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Reserve Bank chief Philip Lowe wants to get paid less to save the economy: ‘It’s hard. The alternative is more difficult
- RBA boss Philip Lowe to warn against wage hikes
- Dr Lowe says pay increases will force RBA to raise rates
Reserve Bank chief Philip Lowe has called on Australians to “ride through” the period of rising inflation by not issuing pay increases despite cost-of-living concerns.
Dr Lowe, who earns more than $1 million a year, explained in a speech on November 22 that wages had to remain stable if Australians were to avoid another rate hike.
The RBA governor wants wage increases to stay below 4 per cent, meaning workers will effectively take pay cuts as prices for food, fuel and household bills rise.
‘I know that it is very difficult for people to accept the idea that wages do not rise with inflation and that people are experiencing falls in real wages. That’s hard. The alternative, however, is more difficult,” she said.
His comments have gained traction again on social media this week, as Australians increasingly struggle with the cost of living crisis.
RBA Governor Philip Lowe (pictured) warned against issuing pay increases as he could risk more rate hikes in a speech late last year.
“If we can get through this period with wage growth staying broadly in the current range … and the supply-side issues are resolved, inflation will come down and be relatively painless.”
Dr Lowe said there was a ‘natural appeal’ to raising wages to match inflation, but stressed it was the wrong move as it could force the central bank to issue more rate hikes.
The Reserve Bank governor will continue to try to convince the public that significant wage increases are a bad move in the coming months as the country goes through peak inflation.
It comes as Deloitte Access Economics delivered a dour picture of Australia’s economy in 2023, saying Australians would be at the “mercy” of the Reserve Bank this year.
Deloitte warned that the country could slip into a recession if the central bank continued to raise the cash rate.
“Any further increase in the cash rate beyond the current 3.1 per cent could needlessly push Australia into recession in 2023,” partner Stephen Smith said in a Business Outlook report.
“At the same time, real household disposable income per capita, a key measure of prosperity, is falling and will end the current fiscal year at levels last seen before the onset of the pandemic.”
Smith said that “there is no doubt that Australian homes are starting to hurt.”
Dr Lowe wants any pay rise to stay below 4 percent, meaning workers will take pay cuts as inflation continues to rise (file image)
Australians have been warning that the cost-of-living crisis is far from over before another spike in inflation (pictured, shoppers at a Sydney Coles)
He prefaced his point by explaining that Australia’s ‘consumer-led recovery’ was ‘quickly running out of steam’.
Mr. Smith added that spending growth would ‘slow down’ due to a ‘combination of falling house prices, rising interest rates, high inflation, low levels of consumer confidence and negative real wage growth’.
The current inflation rate in Australia stands at 7.3 percent.
Treasurer Jim Chalmers expressed hope Sunday that the inflation spike has passed.
The latest inflation data, due to be released on Wednesday, is expected to show another rise in December.
Treasurer Jim Chalmers (pictured) is hopeful that the inflation spike has passed, but warned that difficult challenges still lie ahead
Estimates from both the Treasury and the Reserve Bank suggest that inflation will moderate shortly after the expected peak.
Speaking to Sky News on Sunday, Dr Chalmers was quick to manage expectations that the estimates would result in immediate cost-of-living relief for Australians.
‘We still have a huge inflation challenge in our economy even as we get to the other side of the peak,’ said the Treasurer.
‘Inflation will be higher than we would like for longer than we would like. Thats the reality.