RBA Warns More Rate Rises Ahead, But Wages Won't Follow
The Reserve Bank of Australia (RBA) has warned that more interest rate rises are on the horizon, but don't expect wages to rise in tandem. In a recent appearance before the House economics committee, RBA governor Michele Bullock emphasized the impact of international inflation due to the Iran war and the AI boom.
Bullock noted that oil prices have increased sharply again, adding directly to inflation. She also highlighted the surge in demand for financing driven by AI investment worldwide, which is contributing to higher interest rates.
The market had forecast an 82% likelihood of a rate rise when the RBA meets on September 28-29, and this has now risen slightly. Bullock suggested that unemployment would need to rise to lower inflation, as the impact of international events means that for every level of inflation, unemployment will be higher.
Committee chair Ed Husic took issue with the RBA's suggestion that higher productivity growth will lead to higher wages, presenting a graph showing the collapse of real wages over time. Bullock and her deputy governor Sarah Hunter disputed this, arguing it left out wage increases due to productivity growth and job switching.
The RBA remains concerned about higher wages, with Bullock noting 'there is a risk that capacity pressures remain' and could exacerbate the degree of pass-through of rising input costs.