RBA governor grilled on cost-of-living and inflation at Senate Estimates

Australian Community Media

Michele Bullock has faced the Senate Committee on finances to discuss the state of real wages as the Reserve Bank of Australia looks tipped to increase inflation again in November.

Transcript

00:00 I want to ask you about wages. There was quite a discussion yesterday with Treasury about

00:04 real wages and what real wages are doing. Does the Reserve Bank have a position or an

00:11 understanding on what real wages have been doing and how that's affecting your inflationary

00:18 outlook and your positions on interest rates?

00:22 Real wages are an outcome of nominal wages and inflation. As inflation has risen, that's

00:32 impacted real wages because nominal wages haven't been rising by as quickly as nominal

00:37 wages, and wages take longer to respond. So that's what's been occurring. Real wages have

00:42 been declining. What I would say, though, is that compensation, if you like, rather

00:49 than—a lot of people focus on the wage price index, which is an idea of how much nominal

00:56 wages are rising. But if you look at actual compensation, that's been rising more quickly.

01:03 Compensation might go up because people change jobs to a higher salary, and we saw that there's

01:10 been a lot of that going on, a lot of churn. It might be that there are bonuses, firms

01:16 giving bonuses to keep people. So real wages, if you just looked at, say, wage price index

01:23 and subtracted inflation, you'd say they'd fallen by, say, 3 per cent. They haven't fallen

01:28 by as much as that if you take into account the actual compensation that people are receiving.

01:33 What is the measure of compensation that the Reserve Bank refers to when they make that

01:38 consideration?

01:39 Well, in terms of what feeds into costs, it's total compensation. But what the wage price

01:49 index gives you is a bit of a feel for what the underlying wage pressures are, if you

01:57 like.

01:58 Yes. But is there an index? Is there a measure? Does the ABS provide something that measures

02:02 total compensation?

02:03 Yes. Compensation of employees from the ABS, yes.

02:07 What about on the other side of the real wages ledger, the inflation measure that you use?

02:14 Do you only refer to the CPI or do you look at living cost indices?

02:20 We typically think about it in terms of the CPI.

02:24 The CPI, so the cost of living, which I know is another measure that the ABS refers to,

02:28 which is higher than CPI right now.

02:31 Yes. So ABS has various cost of living indices for particular cohorts, if you like. So you

02:39 can break it down in that way if you wanted to. But typically when we think about real

02:45 wages, we think about it in the aggregate and we think about it in terms of CPI inflation

02:51 and compensation of employees.

02:53 Yes.

02:54 Okay. Thank you.

02:54 [BLANK_AUDIO]

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