Forecasting Wages Growth and the impact of Inflation: Part One
Tuesday April 14, 2009
Wages in Australia are greatly affected and determined by three key factors or components that spread across wages growth by either national economy, State-by-state or industry sector.
They are underlying inflationary trends, productivity level growth and cyclical factors.
Inflationary trends is basically the constant and substantial rise in general levels of prices in relation to an increase in the volume of wages and resulting in the loss of value of the currency. This means that employees need their wages to rise to match the rising cost of living. In this case ';real wages growth' is used in most cases to measure the actual level of wages increase. Real wages growth is the increase in wages after the inflation impact has been assessed.
Australia's Consumer Price Index (CPI) is the measure for inflation where it gauges the average price of consumer goods and services purchased by households. The price index is then determined by measuring the price of a standard group of goods representing the average customer. Also heading inflation levels are elements such as petrol prices and consumer goods prices such as food.
CPI has declined from 6-9% to 2-4% from the 1980's to recent years with wages growth also reflecting this decline. Inflation trends affect on wages growth in Australia tends to be one of the more constant influences with differences arising from state-to-state based on individual economic growth which can drive a state's own inflation prices.
However, these differences in pricing and inflation from state-to-state tend to even out nationwide and create a fairly even national inflation level, meaning wages and wages growth can be fairly similar.
The outlook for inflation for Australia, and therefore wages growth, is gaining some momentum as demand closes in on the potential level of supply within in the national economy. While the global economic recession is obviously hindering almost all industries and growth across sectors and the Reserve bank of Australia is also decreasing interest rates which will also limit the strength of wages growth.
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