Finance Finance News Things look brighter for your non-housing dollars

Things look brighter for your non-housing dollars

real wages growth
There are signs that real wages growth will soon lift from its record low levels. Photo: Getty
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During a period of extreme asset inflation – which we continue to see in sections of the housing market – it can be hard to get a fix on what’s happening elsewhere in the economy.

And yet we really need to know, given the political fights that have broken out over the minimum wagepenalty rates, and the level of pay rises built into private- and public-sector EBAs.

For younger Australians, the question ‘what are my wages worth?’ has two answers.

In relation to the dream of owning your own home, wages have been decimated by asset inflation.

That’s a major hit to the future welfare of many Australians because reaching retirement age without a paid-off home sets the scene for decreased disposable income.

The other answer is that, in relation to the cost of just about everything else, wages are holding up.

Economist Saul Eslake says he thinks the record low growth in real wages – that is, adjusted for inflation – has probably now bottomed and should therefore start to creep up.

In the current fight over the minimum wage, employer groups want an increase of 1.2 per cent – a real pay cut when consumer prices are rising 1.5 per cent.

The unions, on the other side, want to see the minimum wage raised 6.7 per cent to reflect low increases in recent years.

The Fair Work Commission will almost certainly land somewhere in the middle – probably not too far off the 1.9 per cent average wage growth across the economy.

The question is, in what kind of environment will these wages be spent?

Well, the signs aren’t all bad, but the way things play out will be greatly influenced by global influences, particularly the Trump presidency.

When I spoke with Mr Eslake on Thursday, he outlined two basic scenarios.

In one, the Trump administration manages to get its bold (or is that reckless?) fiscal agenda past Congress. That would see huge military spending, huge infrastructure spending, large tax cuts, and a surge in US inflation.

As a result, the Aussie dollar would fall substantially against the US dollar, and many of the goods we import would become more expensive relative to wages – especially petrol, which follows currency shifts more quickly than most other imports.

The second scenario is one in which Congress blocks the Trump fiscal plans, much as it did the Obamacare repeal.

That would push the President into pursuing other election promises, such as protectionist tariff hikes, which he could push through without Congress.

In that scenario, the Aussie dollar would hold up against the US dollar, but commodity prices would be weaker and our national income, and tax revenue in Canberra, would take a hit.

The short version, then, is that Australians will feel the pinch of imported inflation more if Trump gets his way – but should also see higher growth and wage rises to match.

Think domestic

Then again, a lot of the relationship between wages and prices happens at a domestic level.

Rents, for one, won’t move much – or if they do it will be down to an oversupply of apartments hitting the market.

Services, which account for around half of CPI inflation, will still predominantly be delivered and consumed in Australian dollars. So not much inflationary impulse there.

Australian Organic Awareness Month encourages people to buy "cosmetically inferior" fruit and veg.  Photo: AAP.
The impact of Cyclone Debbie could make your fruit and vegies more expensive. Photo: AAP

And the coming spike in fruit and vegetable prices that will flow from cyclone Debbie will, as with previous cyclones, last perhaps a year to 18 months.

Electricity, the political football du jour, has increased in price dramatically in past years but cannot continue to rise – some kind of political fix, such as a gas reservation policy, is likely to say the least.

At this stage, therefore, Australians who receive pay rises at or near the CPI inflation rate are really only falling behind in one area – home ownership.

However, that could change very quickly as a growing chorus of economists call time on the housing bubble.

After that, perhaps, there will finally be one answer to the question ‘what are my wages worth?’ And wouldn’t that make a wonderful change.

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