A comprehensive review of inflation released today by the Australia Institute’s Centre for Future Work reveals that the inflation targeting in place since the early 1990s is not the neutral policy many assume it is. In that time inflation has missed the target more from below than above, and has coincided with a shift of national income away from workers to profits as wages have stagnated.
For a record 33 straight months from September 2016 through May 2019, the Reserve Bank kept the cash rate stable at 1.5% despite inflation being below 2% — while real household incomes flatlined. And yet as soon as inflation goes above the 3% ceiling, the Reserve Bank seeks to quickly increase interest rates, reducing economic activity and wages growth.
“Since the end of 2019 real wages have fallen 3.1% and are expected to fall even further. The inability of wages to keep up with inflation has seen real wages fall back to 2012 levels,” said Dr Greg Jericho, Labour Market and Fiscal Policy Director at the Centre for Future Work.