My Blog

Author: Greg Jericho

  • The latest report from the IMF highlights the need for full-employment

    The IMF’s latest World Economic Outlook is mostly framed around trying to thread the needle of reducing inflation and cost of living rises and not crashing the economy while doing so.

    And while overall the IMF suggests the world economy is in for a “soft landing” the picture it paints for Australia is of a tough year ahead. Policy director Greg Jericho notes in his Guardian Australia column that the IMF has downgraded its expectation for growth next year from an already bad 1.7% to a historically awful 1.2%.

    Were Australia’s economy to grow this slowly through the year and avoid a recession it would be the first time that has happened. The IMF also predicts that 2025 will grow by just 2.0%. Were that to occur, it would be the first time on record that Australia’s economy has gone 3 consecutive calendar years without growth above 2%. That is hardly a “soft landing”

    The IMF also now predict unemployment will rise quicker than it expected would be the case in its previous outlook in April.

    The report highlights the need for the government and the Reserve Bank to work to deliver full employment. The current settings have the nation on course to grow so slowly for so long that the risk of the economy stalling are rising precipitously.

    The post The latest report from the IMF highlights the need for full-employment to be the aim of the government and the Reserve Bank appeared first on The Australia Institute's Centre for Future Work.

  • Inflation remains headed in the right direction despite higher oil prices

    The latest monthly CPI figures out on Wednesday showed a slight increase in the annual growth of inflation, but policy director Greg Jericho writes in his Guardian Australia column that the Reserve Bank should not use it as an excuse to raise rates next week.

    While CPI rose from 4.9% to 5.2%, the monthly figures can be quite erratic and thus it is best to also take note of the measure that excludes volatile items and holiday travel (which can exaggerate movement son a monthly basis). On this measure, annual inflation feel from 5.8% to 5.5%.

    The big driver of inflation in August was a 9% jump in automotive fuel prices. And indeed much of the inflation over the past 2 years has come from overseas increases in world prices of commodities and of course companies taking advantage to increase profit margins.

    The latest figures show that once again there is very little that the RBA can do to limit these price rises. While a higher exchange rate might ameliorate some of the increases, it is always foolish for the RBA to attempt to increase the value of the dollar by raising interest rates. Any changes in the value of the exchange rate due to another rate rise would likely be small and temporary.

    The new Governor of the RBA, Michele Bullock should recommend the RBA board look through the monthly movements of the CPI and note that inflation here is following largely the same path as that in the rest of the OECD. Raising rates now would only serve to punish households for an increase in prices that had no link with wages or the level of demand in Australia economy.

    The post Inflation remains headed in the right direction despite higher oil prices appeared first on The Australia Institute's Centre for Future Work.

  • The weak economy shows the Reserve Bank is not threading the needle

    The latest June quarter National Accounts released yesterday showed that without the increase in population, Australia’s economy would have shrunk for two consecutive quarters. This, as Policy Director, Greg Jericho writes in his Guardian Australia column, reveals just how weak our economy is, and how massively households have been hit by the 400 basis points rise in the cash rate.

    The Reserve Bank has talked about trying to thread the needle of lowering inflation and delivering a soft landing. But with GDP per capita falling and real household disposable income per capita now 5% below where it was a year ago, it is becoming harder to suggest the RBA has achieved its aim.

    Even when including population growth GDP only rose at all because of government spending and investment. The private sector is struggling as companies run down their inventories rather than build up supplies in the hopes of increased sales in the months to come.

    The household savings ratio is now as low as it has been since the GFC as households do what they can to pay the costs of essential items and reduce their purchase of discretionary goods and services.

    The Reserve Bank sought to dampen demand from a misguided view that demand was driving inflation. Instead, we know that inflation has largely been driven by international prices and costs and from companies taking advantage of the situation to increase their profits.

    Rather than focus purely on inflation the RBA and the government now need to be most wary of rises in unemployment. We are not in a recession yet, but should the economy continue to fail to grow aside from population unemployment will inevitably rise, and the cost of the RBA’s strategy will be felt even more so by households across the country.

    The post The weak economy shows the Reserve Bank is not threading the needle appeared first on The Australia Institute's Centre for Future Work.

  • Australia’s emissions are rising at a time they need to fall quickly

    The latest Quarterly Greenhouse Gas Emissions data came and went last Friday with little coverage. As Policy Director, Greg Jericho writes in his Guardian Australia column this meant that much of the terrible news was missed.

    In the past year, Australia’s greenhouse gas emissions have increased with the rise in transport emissions undoing any of the good that comes from falling emissions out of the electricity sector. At a time when we should be on a clear path to reducing emissions by at least 43% below the 2005 level by 2030, we are heading in the opposite direction.

    The figures also highlight the weakness of our 2030 target. The only reason we are even halfway to achieving that cut is because Australia includes land use in its calculations. Without including the faux cuts in emissions that come from using 2005 and the massive land-clearing that occurred that year as a baseline, Australia’s emissions would be just 1.6% below 2005 levels.

    Next week the June quarter GDP figures will be released. We know exactly when they will be released and they will receive massive coverage, including a press conference by the Treasurer soon after 11:30am on Wednesday. By contrast, the quarterly greenhouse gas emissions data is released at random times with now warning and without any minister fronting media to discuss, explain and defend the government’s policies.

    We need to treat the greenhouse gas emissions release with the same level of attention we give to GDP, and we need to demand what the government is doing to ensure in 3 months time with the next release the figures will show a fall, rather than a rise.

    The post Australia’s emissions are rising at a time they need to fall quickly appeared first on The Australia Institute's Centre for Future Work.

  • For most workers, wages are still failing to keep up with inflation

    The best news from the June quarter wage price index is that average wages rose 0.8% – the same as inflation. This means that after 11 consecutive quarters, real wages have finally stopped falling.

    That is the good news, but as Policy Director, Greg Jericho noted in his Guardian Australia column, for most workers real-wages kept falling. Only good wage growth in construction, mining, transport and warehousing, and the utility industries enabled the overall growth to be equal with inflation. For workers in all other industries, real wages kept falling.

    And for all workers, real wages in the past year have fallen sharply and are around 5.4% below where they were before the pandemic.

    These latest figures only serve to reinforce that wages are not driving inflation and there is no sign at all of a wages breakout. Indeed, annual wage growth fell in the June quarter to 3.6% from 3.7%.

    It highlights that we do not need unemployment to rise to 4.5% in order for inflation to get under the RBA’s 3% target ceiling. The current rate is more than consistent with long-term inflation of between 2% and 3%. Any further efforts to raise unemployment by increased interest rates would only hurt workers and households for no benefit.

    The post For most workers, wages are still failing to keep up with inflation appeared first on The Australia Institute's Centre for Future Work.

  • Inflation is falling so let’s make sure we don’t let unemployment rise

    The latest quarterly CPI figures showed that inflation is falling dramatically and in line with that of other major economies such as the USA and Canada. This, Chief Economist, Greg Jericho writes means we have a prime opportunity to lock in the current level of low unemployment.

    Through the past year of the Reserve Bank raising interest rates, the main justification has been that the economy needs to be slowed in order to bring down demand pressures on inflation.

    What the latest figures reinforce however is that the major pressures have come from the supply side. Australia’s inflation is essentially following the same path as other nations. This is because inflation is slowing largely due to reduced world prices of commodities rather than any response to increasing interest rates.

    Indeed the largest driver of inflation in the June quarter was rental prices, which will have been in part due to investors raising their prices to deal with higher mortgage payments.

    In the past year, unemployment has remained at 3.5% while inflation has gone from 6.7% up to 8.4% and now down to 5.4% (using the monthly measures). The belief that we needed to raise unemployment to 4.5% in order to stop inflation from accelerating is a cruel approach that treats inflation in the wrong way.

    Fortunately, in spite of the RBA’s best efforts, unemployment has not yet risen. This presents Australia with a genuine chance to lock in historically low unemployment as the norm.

    Rather than pursuing higher unemployment in order to reduce inflation the RBA and the government should be pursuing policies that keep unemployment low while also reducing inflationary pressure. This can mean a price cap on essential items such as rents and energy, introducing windfall-profits taxes, and increased public housing investment to reduce housing price surges.

    Interest rates are not the only way to tackle inflation and in an environment where profits are been driven by supply-side issues and profits they are one of the worst ways.

    Full employment needs to be the target, not a mythical “non-accelerating inflation rate of unemployment” that largely justifies higher unemployment and more ho0usyheold living in poverty.

    The post Inflation is falling so let’s make sure we don’t let unemployment rise appeared first on The Australia Institute's Centre for Future Work.

  • Hollywood actors showing that unity is strength

    When workers are united and able to collectively bargain, they can win good outcomes.

  • If the unemployment rises to 4.5% who is likely to lose their job?

    The next 12 months ahead look to be a time of rising wages, and rising unemployment. The Reserve Bank is trying to raise unemployment in order to prevent rising wages. It’s target of 4.5% will see around 130,000 to 150,000 more people unemployed than is currently the case.

    Labour market policy director, Greg Jericho, in his Guardian Australia column, examines which workers are likely to be the ones who will lose their jobs.

    In a bitterly ironic point, he notes that these are the same workers whom Deputy Governor of the Reserve Bank Michele Bullock recently boasted were the ones who had gained the most from the strong employment growth of the past 18 months:

    people on lower incomes and with less education who have benefited the most from the strong labour market conditions

    More worrying is that the Reserve Bank’s own estimates suggest that the rises in unemployment over the next year will see Australia breach the “sahm Rule” of recession, in which the unemployment rate rises more than 05%pts in a year. Oddly however the RBA’s correspondence on the issue revealed in an FOI disclosure has them suggesting that for Australia the recession trigger is a 0.75% rise.

    Either way, history suggests that when unemployment rises in a year by the amount the RBA is estimating it usually keeps rising.

    The RBA’s own estimates show just how close to a recession the economy is set to go in the next year. It already looks likely to hit workers with low skills and low paid jobs, and if the RBA gets it wrong, it will quickly hit many more of society.

    The post If the unemployment rises to 4.5% who is likely to lose their job? appeared first on The Australia Institute's Centre for Future Work.

  • Bolstered by a biased tax system, house prices keep rising

    Despite rising interest rates, the latest figures from the Bureau of Statistics show that Australia’s house prices rebounded in the March quarter of this year. Policy director Greg Jericho writes in his Guardian Australia column that since the beginning of the pandemic property prices around Australia have risen 26% while at the same time average household disposable income has increased just 8%.

    This disparity has massive consequences for affordability. Had for example the median property price in Sydney risen in line with household incomes since June 2020, instead of being $1.15m it would be $954,000 – a $196,000 difference.

    Underlying the strength of the market even in the face of rising interest rates is the fact that Australia’s tax system is biased towards property investors.

    The most recent taxation statistics covering 2020-21 showed for the first time the number of investors recording property net profits was greater than those recording a loss. Such a situation only occurred because of the record low interest rates at the time. We know that the past 12 months will have seen a large spike in the number of people negative gearing their properties and thus not surprisingly housing remains an attractive investment not in spite of rising interest rates, but because of rising interest rates.

    The post Bolstered by a biased tax system, house prices keep rising appeared first on The Australia Institute's Centre for Future Work.

  • The economy is slowing as households get smashed by yet more rate rises

    The March quarter saw Australia’s economy grow a rather pathetic 0.2% and fall 0.3% in per capita terms. As policy director Greg Jericho writes in his Guardian Australia column, the economy is slowing at a pace that normally would see the Reserve Bank thinking about cutting rates.

    And yet as poor as these figures are, worse is likely to come as the March quarter does not include the two most recent rate rises and only a small amount of the impact from the rate rises in February and March. Both the Treasury and the RBA estimate the Australian economy will go backwards on a per capita basis over the next year and these figures suggest their estimates are if anything too optimistic.

    Households are reducing their savings as wages fail to keep up with inflation. Over the past 2 quarters, household consumption grew at an annualised pace of just 1%. Whenever household consumption has grown that slow the economy has either been in a recession or teetered on the edge.

    And yet despite acknowledging there was uncertainty over household spending, the RBA on Tuesday decided to raise rates in order to essentially slow household spending.

    All they have done is once again hit households that already need a standing 8 count.

    The figures pleasingly showed that total wages are now growing solidly due to both increased employment and better wage growth. But this has not come at the expense of profits, indeed corporate profits in the March quarter rose 3.2% – faster than the 2% increase in unit labour costs. Real unit labour costs rose just 0.2% in the March quarter while real unit profit costs rose 1%.

    This again highlights that profits more than wages drive inflation, and raising rates to slow wage growth by raising unemployment is a poor monetary policy that only risks an unnecessary recession.

    The post The economy is slowing as households get smashed by yet more rate rises appeared first on The Australia Institute's Centre for Future Work.