Australia’s inflation figures are clear, but when it comes to official wages data, we might be flying blind
There’s a bizarre lack of clarity over a particularly crucial economic data point that affects every Australian.
We are all aware of the rising cost of living: gas bills, filling up at the petrol pump, food, transport and home building.
Many of us don’t need the quarterly CPI or inflation statistics from the Bureau of Statistics to know prices are raising rapidly.
That covers off just one side of the household budget, though. There’s another side: income.
Many of us will be acutely aware of how much money is coming into our bank accounts every week, fortnight or month, but what about everybody else?
There’s a big disparity when it comes to what we earn and, officially, we don’t really have a clue about how were faring.
That suggests policy makers don’t have a good handle — at least in hard dollar terms — on how well households are doing economically.
For some, that’s not good enough, so they’re doin’ it for themselves. What do I mean? Let me explain.
More clarity on wages
The last time we received an accurate picture of how fast our pay packets were increasing was May 18 this year, with the ABS Wage Price Index. It showed flat wage growth since late 2021.
The Reserve Bank has been suggesting since then that the pace of wage growth, more broadly, is “lifting”. This is based on its “liaison program” and “business surveys”.
The business surveys don’t point to any increase in wage growth.
And while its liaison program has hundreds of businesses on its register, including entities that represent thousands of businesses, it only made contact with about 60 businesses to determine earlier this year that it had seen “larger” increases in wage growth. Only a proportion of those businesses suggested this was the case.
Several academics, meanwhile, have described the bank’s method as not statically valid.
We’ll get more clarity on the wage growth picture on August 17, when the ABS releases its June Wage Price Index, measuring the pace of wage growth for the three months to June.
NAB’s not waiting
The National Australia Bank, however, isn’t interested in waiting that long.
It says it needs to know — essentially to manage risk in its business — to what degree its customers are struggling to make ends meet.
It has roughly 8 million customers, many of whom pay rent or need to service their mortgages. Crucially, those customers also have wages deposited into their bank account.
It’s the most robust data collection of wage growth outside of what the Bureau of Statistics produces.
The NAB is getting real-time data on whether its customers’ wages are going up, down or sideways.
NAB’s chief economist Alan Oster says the bank has had to be very careful with wages data collection.
For example, many Australians don’t have an ongoing position that delivers nice, neat pay rises into their account. Others have two — or more — jobs.
It’s the first time the bank has used its customers’ data in this way. So, it began with the deposit account data of roughly a million customers, and its computer models whittled that down to 250,000 customers that has straightforward, measurable wage or income deposits.
Its results are remarkably consistent with the ABS’s results on wage growth.
That is, NAB’s analysis has found wage growth increased 2.5 per cent in the three months to June — up 0.1 per cent on the ABS’s measure for the March quarter. In other words, wage growth, it reckons, is barely budging.
This is contradictory to what the Reserve Bank is reporting.
Then there’s inflation
If you didn’t know much about inflation a few months ago, you probably do now.
It’s rising, and the basket of goods and services most affected by price rises include the sorts of things we purchase everyday: petrol, food and drink — so it’s hurting many people financially.
Earlier in the year, inflation was a fraction above 5 per cent, according to the Bureau of Statistics. Now it’s a fraction above 6 per cent.
The Reserve Bank has indicated it could go north of 7 per cent, while the Treasurer has now confirmed it’s expected to peak at 7.75 per cent.
Why? Well, it’s clear gas prices are increasing, and the petrol excise will return in September.
The story to this point has been that while wage growth is increasing, it’s not increasing at a fast-enough pace — especially when compared to the pace of price rises in the store (inflation).
The reality, though, is that wage growth, broadly speaking, isn’t increasing at all.
This means real wage growth (wage growth measured against inflation) is constantly falling.
The chart above shows Treasury believes households are going to continue to struggle with much more money leaving their budgets than coming in until at least the end of the year.
But did you notice the miraculous bounce back in wage growth projected for next year and the year after?
Curious about this, I contacted the Treasurer’s office to understand how the number crunchers arrived at this conclusion. The answer is that Treasury’s view on wage growth is shaped by what the Reserve Bank publishes.
And what about hard numbers on the future of inflation? How are they calculated?
I put these questions to Jim Chalmers’ office, but I have not yet received a response — including on how the inflation figure of 7.75 per cent was derived.
The Treasurer’s ministerial statement was highly anticipated and closely watched by media. But what exactly did we learn from it in terms of hard facts about the economy, and the challenges we’re facing?
No concrete idea
When formulating policy, it’s crucial to deal with truth and facts. Any deviation from this will lead to incorrect policy or solutions that are not fit for purpose.
Today the Reserve Bank will decide how high to lift its cash rate target.
Its decision will affect millions of mortgage borrowers and renters and will have flow-on effects for the economy in terms of demand and the pace of economic growth.
At this point there appears to be no official clarity on how well Australians are actually placed to manage this change.
We know there’s $260 billion worth of savings but it’s also clear this is not evenly distributed — another point about which we’re unsure.
At the same time, we know that while the Reserve Bank has tools to combat inflation, its tools won’t fix a large chunk of the inflation problem — created by factors outside of the RBA’s control.
It’s a little jolting when you realise the data we’re working with to solve big problems is incomplete, and the tools we’re using to fix the problems we’re not quite sure about aren’t exactly right either.
Perhaps it wouldn’t be quite so jarring if, given we’re all working harder, based on the latest productivity data from the National Accounts, we all received a genuine lift in the growth of our pay or wages.
But it appears that’s not happening.
It might be more helpful if the message was simply “we know you’re doing it tough” and “we’re trying to find the solutions”?
It’d certainly be more believable.