Workers set to take a real pay cut of 1.5% as inflation surges, RBA boss warns

theguardian.com:

The governor of the Reserve Bank of Australia, Philip Lowe, has warned Australians they are set to take a real pay cut of 1.5% this year because sluggish wages growth won’t meet a surge in inflation.

Lowe said he was hopeful the inflation spike was a one-off caused by supply chain disruption and soaring oil prices due to Russia invading Ukraine, but there were signs that business operators were increasingly willing to jack up prices.

“The inflation rate at the moment is 3.5% and will probably go up to 4.5%, who knows, depending on what happens with oil prices,” Lowe told journalists at a Walkley Foundation lunch in Sydney on Tuesday.

“Wages are maybe going up high twos, let’s say three, and inflation is 4.5% – that’s a real wage cut of 1.5%, so that will obviously affect people’s budgets.”

He said inflation would “come back down again” and the wage cut needed to be balanced against an extra $250bn in savings banked by households during the pandemic, when people’s income was supported through the jobkeeper scheme and spending was limited by lockdowns and travel bans.

“As long as inflation comes back down again households will manage through this and on average they’ve got a lot more money to help them,” he said.

Real wages have been stagnant in Australia for almost a decade, frustrating Lowe, who said he would “like to see some bigger increases”.

He said wages were lagging inflation because of state and federal pay rise caps and enterprise agreements that lock in wage rises at a fixed figure for several years.

“There are two issues that are really on our mind at the moment. The first is how persistent the supply side problems are, how long are they going to keep pushing up prices and at what point will some of those price