The Great Inflation Debate isn’t going away any time soon, roiling markets as the headlines roll through – but there are signs of both good and not-so-good inflation at work here.
Euan Black has reported on what worries financial markets about the prospect of higher inflation, primarily the higher interest rates that the Reserve Bank has promised will follow when it believes a healthy level of inflation is being sustained.
The consensus view is that inflation is coming off the floor, but there’s plenty of room for doubt about how far and for how long.
What the balder statistics overlook is that there are different types of price rises, some good, some bad, some temporary, some perhaps more lasting.
For example: Two different industries are getting plenty of coverage for their shortages – the shortage of chips hurting the auto industry and the shortage of chefs to cook chips (among other things) in our restaurants.
The former is causing production delays and shutdowns when demand for cars and SUVs is bouncing, resulting in higher prices for the autos that are available, both new and second hand.
The latter has restaurant owners complaining loudly, some staff working longer and harder, some restaurants reducing their hours. Yet to be seen is how much it results in higher prices, both for chefs and for meals.
Unsurprisingly, neither chip story is entirely straight forward and both include evidence of self-inflicted wounds.
The auto industry was already feeling a slowdown before COVID hit, causing a backup in stock. Global car sales peaked in 2018, Australian auto sales back in 2017.
Fearing the worst as the epidemic hit, auto companies cancelled orders for parts, including those vital little semiconductors.
Surprise – as demand has bounced, it has proven not so easy for vehicle manufacturers to get back in the queue.
The Economist magazine quoted a semiconductor industry consultant: “I can cancel my orders in an afternoon. If I want to start them up again, that takes months – and anyway, that capacity is now busy serving other customers.”
The microchip shortage, like many of the supply chain bottlenecks, will eventually sort itself out with more production.
It’s a reasonable bet that when the parts are flowing freely again, auto manufacturers won’t be able to resist producing flat out, with the usual result of diminished pricing power.
The restaurant chip business is more complicated, reflecting the impact of several years of falling real take-home wages, a decline in training and a reliance on exploiting foreign labour on temporary visas.
Restaurant owners demanding our borders be opened again to “return to normal” won’t solve the underlying problems of an industry with a miserable record of underpayment.
What The Economist has done for putting some perspective on microchips, Gourmet Traveller magazine has for restaurants, finding the present staff shortage has been years in the making.
The article recounts what all should know – it was government policy to not support foreign workers, encouraging them to leave – and many thousands did, creating the immediate shortage. Reports Yvonne Lam:
In pre-pandemic times at Sydney’s Nomad, the kitchen was predominantly staffed by international workers. “There were times where in a team of 25 to 30 chefs there might be just five Australian workers. [Migrants] are the backbone of the industry,” says executive chef Jacqui Challinor.
The greater value in the story is getting beyond those immediate headlines:
There’s another more necessary acknowledgement to the industry-wide worker shortage: The labour crisis was well under way before the pandemic, spurred by stagnant wages, poor working conditions, and a lack of quality training to feed the hospitality talent pool in Australia.
Restaurant owners point to the gradual whittling away of TAFE education by Labor and Liberal governments over the years, and the cutting of chef apprenticeships from four years to three has diminished the quality of applicants in the sector.
Then there are the alarming statistics about enrolment and course-completion rates.
“In 2010, the number of food trade workers in apprenticeships and traineeships was 19,200, and by 2018 that declined to 12,000,” says (Sydney University Business School Associate Professor) Chris Wright. “And those who actually completed those courses have declined by almost half, from 6300 in 2014 to 3200 in 2018.”
It’s not an industry that has done much to encourage local staff, contentedly relying on temporary visa holders, often more easily intimidated and exploited.
With the borders not opening any time soon, hospitality is being forced to change.
Workers will have to be paid better, we customers will have to pay more for our restaurant experience, and the industry will be healthier for it.
How long hospitality’s contribution to a better level of inflation lasts will depend on government policy when the pandemic recedes.
A well-run skilled migration scheme will provide the well-paid foreign workers necessary for all the other jobs to flow – but not a workforce liable to exploitation to keep wages stagnant and our chips cheap.