spacer
spacer
spacer
spacer



CPA LOGO
spacer
Latest News
Hot Issues
Small businesses may ‘collapse under strain of payday super’, IPA warns
ATO’s hands tied with scrapping on-hold debts, expert says
What Drives Your Business Growth and Profits?
Australian Taxation Office (ATO) shifting to firmer debt collection activity
Why employee v contractor comes down to fine print
Sharing economy reporting regime for platform operators
Countries producing the most solar power by gigawatt hours
Illegal access nets $637 million
Accessing superannuation benefits.
Does your business have a company Power of Attorney?
Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
GrantConnect
2 in 3 SMEs benefit from instant asset write-off, survey reveals
Updated guidance on R&D claims
Do you know how to recover debts?
Wheat Production by Country
Types of small business benchmarks
What is a Commercial Lease?
ATO warns advisers against suspect R&D tax claims
The year of workplace law upheaval
How to Resolve Invoice Payment Disputes
Raft of revenue tweaks in MYEFO to raise millions
The Countries that Export the Most Wine in the World
Articles archive
Quarter 4 October - December 2023
Quarter 3 July - September 2023
Quarter 2 April - June 2023
Quarter 1 January - March 2023
Quarter 4 October - December 2022
Quarter 3 July - September 2022
Quarter 2 April - June 2022
Quarter 1 January - March 2022
Quarter 4 October - December 2021
Quarter 3 July - September 2021
Quarter 2 April - June 2021
Quarter 1 January - March 2021
Quarter 4 October - December 2020
Quarter 3 July - September 2020
Quarter 2 April - June 2020
Quarter 1 January - March 2020
Quarter 4 October - December 2019
Quarter 3 July - September 2019
Quarter 2 April - June 2019
Quarter 1 January - March 2019
Quarter 4 October - December 2018
Quarter 3 July - September 2018
Quarter 2 April - June 2018
Quarter 1 January - March 2018
Quarter 4 October - December 2017
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Low productivity threatens inflation outlook, RBA warns

The RBA expects that inflation will return to target in mid 2025 but rising unit labour unit costs presents a significant risk for inflation.



.


The Reserve Bank of Australia is taking a balanced course back to three per cent inflation but has major concerns about low productivity levels driving up unit labour costs, RBA governor Dr Philip Lowe has said.


“Unit labour costs is the difference between wages growth and productivity growth. Wages growth is around 3.75 per cent. Historically, that hasn’t been a problem, that would have been a good number,” Dr Philip Lowe.


However, with productivity growth at a standstill this has led to higher unit labour costs within Australia.


“Over the past three years there has been no increase in the average output produced per hour worked in Australia. There has been no productivity growth for three years,” said Dr Lowe speaking at a Senate Economics Legislation Committee this week.


“So we’ve got wages growth at 3.75 per cent and no productivity growth and that’s an issue I’ve been drawing attention. It’s a problem for the country and an its a problem for the inflation outlook at all.”


Other central banks are facing similar issues with the growth of unit labour costs, according to the Reserve Bank.


“It’s a problem. If you’ve got labour cost growth at 3.5 to 4 per cent. Then it's hard to have 2.5 per cent inflation,” he stated.


“The best solution to this is uplifting productivity growth.”


Dr Lowe said the RBA’s next decision on the cash rate target will depend not only on unit labour costs, but the global economy, inflation expectations and consumer spending.


With many businesses operating in survival mode rather than growth mode during the pandemic, this may have led to a slow down in investment, he said.


“We also saw disruptions were you couldn’t get investment goods and you couldn’t get people. All of those things hurt productivity growth during the pandemic. That’s now behind us so perhaps now we’ll see productivity growth pick up,” he said.


“If there's no productivity growth, then it's hard to have increase in real wages. That's the reality we really have to face.”


Inflation forecast to return to target range in mid-2025


The Reserve Bank is expecting the headline inflation rate to return to 3 per cent by mid-2025.


Dr Lowe said while this is a bit later than other countries, the RBA has consciously made the decision to have a “slower glide path back to target”.


“We want to preserve some of the gains in the labour market that have been achieved,” he said.


“Australia has not reached full employment in four decades and we’ve finally got there. This is one of the positive legacies of the pandemic. Youth unemployment is the lowest it’s been in decades and people have the opportunity to get more hours of work. Getting a job is the easiest it’s been in 50 years.


The RBA will still pursue a course back to 3 per cent inflation but it will be a balance course, said Dr Lowe.


A rebound in inflation for April raises risk of rate hike


The ABS’ Monthly CPI Indicator rose to 6.8 per cent year on year in April from 6.3 per cent year on year in March.


“This was stronger than market expectations for a rise to 6.4,” said AMP chief economist Shane Oliver.


“The Monthly CPI Indicator partly reflects the dropping out of the April 2022 drop in fuel prices due the halving of fuel excise and a 7 per cent rise in April in holiday travel and accommodation which looks to be seasonal due to Easter and school holidays.”


The ABS data showed that new dwelling purchase costs and household furnishing and equipment inflation are continuing to slow but rent inflation is continuing to accelerate and electricity inflation at 15.2 per cent year on year is set to rise further from July.


Dr Oliver said the trend in inflation still remains down.


“Given this along with falling real retail sales and signs of a rising trend in unemployment our base case remains for the RBA to keep rates on hold next week,” he said.


“However, with inflation still very high and upside risks to wages flowing from the upcoming minimum wage increase, the still tight jobs market and faster public sector wages growth the risk of another rate hike is now very high.”


 


 


 


01 June 2023

Miranda Brownlee

accountingtimes.com.au



21st-June-2023
spacer
Privacy Policy | Disclaimer