Beware the wages bogeyman – it’s the housing, stupid

As predictable as Pauline Hanson’s racism, commentators held up Thursday’s labor market figures as evidence of financial disaster and monetary policy pessimism. Michael Pascoe He worries the RBA will too.

Isn’t it great to have an economy with low unemployment without causing inflationary wage increases?

Apparently not, according to leading fishermen, who regard the unemployment rate remaining stable at 4.1 percent in January as a bad development

a bad thing that urgently requires high interest rates.

Three weeks ago the Central Bank’s monetary policy board was not expecting any further figures and was happy to wish unemployment would rise further after the rate fell to 4.1 in December. Minutes of the Feb. 3 meeting released Wednesday showed the board was not shy about the tightness of the labor market, as bank staff and the Governor did.

It was a feature of last year that the RBA called the labor market “somewhat tight” without specifying exactly whether it was “very tight”.

Being “a little tight” is actually a good thing because it encourages lazy management to increase efficiency rather than hiring another agency. It’s “too tight” when the laws of supply and demand push wages up to fuel an inflationary spiral.

When is tight too tight?

According to board minutes: “Staff’s overall assessment was that the labor market was slightly tighter than is consistent with full employment.”

“Full employment” is the RBA’s euphemism for an unemployment rate that does not raise inflation. It’s a bit of a nonsense that the bank has the “twin mandate” of targeting 2.5 percent inflation and targeting “full employment” and that “full employment” is only when inflation is in that zone, whatever the unemployment rate is.

So we don’t currently have “full employment” with an unemployment rate of 4.1 per cent, we have overemployment as the RBA board looks forward to seeing unemployment rise to 4.5 per cent in the bank’s forecasts after a few interest rate hikes.

Monetary hawks choose a variety of figures to make their case, particularly unit labor costs, which reflect lax management as well as labor demand and pricing.

What they choose to ignore or downplay is the headline figure and success of this economic cycle; The wage price index, which shows wage growth, is consistent with the inflationary target range rather than out of control.

Wednesday’s December wage price index announcement was greeted with the headline that real wages turned negative again and that 2025 CPI inflation increased by 3.8 percent and WPI increased by 3.4 percent.

Tax impact

This wasn’t actually news, as regular MWM readers would have read in December.. Readers also know that the situation is worse than other commenters are reporting because everyone else is ignoring the tax impact.

For example, to repeat myself, a person whose average full-time salary this year is $90,000 pre-tax and receives a 3 percent pre-tax raise will only receive a 2.6 percent increase in their after-tax pay packet.

But I digress. The key to the December quarter WPI was confirmation that private sector wages, the area that best reflects market forces, rose steadily at 0.8 percent. When we calculate the last two quarters on an annual basis, private wage growth remains at a healthy level of 3.2 percent; This figure is in line with the RBA’s inflation target because workers are expected to share some of our productivity growth.

This is not what the lobby, concerned with minimizing fees and maximizing profits, keeps telling us.

tradesman wind

Instead, the most frequently cited example as representative of our “very tight” labor market is the cost and availability of tradespeople. “Tool-using” construction workers make up only six percent of the workforce, but that six percent stands behind the policies and interpretations.

When asked who was responsible for the rise in inflation in November, RBA Governor Bullock went straight to ute drivers:

“Well, I think there’s a couple of things. One, it probably tells us that there’s a little bit more excess demand in the economy than we thought, and sometimes it’s hard for people to understand that, but if you take a very microcosm, very simple example, I don’t know how many people are trying to get a tradesman to work in their home. That’s hard. That’s hard.”

“What this tells you is that in a particular microcosm of the Australian economy, the demand for these services is greater than the capacity to provide them.”

Bullock right above the residence

And Ms. Bullock is right, our real inflation problem goes back to housing, which is also our main political problem when we aren’t distracted by crashing parties, racist demonstrations and/or dog whistles.

This is housing, stupid.

Thirty years of both parties and governments at all levels thinking that the “market” could take care of providing adequate housing to the population has brought us into the current crisis of both affordability and availability.

And the policy overwhelmingly promises to maintain, at best, the current unsatisfactory status quo. As announced two years ago, and will most likely make the situation worse.

This month’s board minutes touch on this:

“Staff concluded that much of the increase reflected less persistent factors, including price fluctuations in categories such as electricity, travel, and groceries, as well as some industry-specific demand and price pressures affecting prices of new housing and consumer durables. Inflation in administered prices (excluding electricity) was only slightly above its historical average and increased only modestly.”

The “sector specific” part is housing.

Housing and cost of living

This was the area showing the biggest growth in CPI at 5.5 per cent in 2025, and it was the area where the ABS couldn’t even measure all housing inflation because it understated what rent was doing.

The key factor in our “cost of living” crisis is housing – the cost of renting, purchasing and building. Housing is at the root of much of our social divide, which led to the birth of One Hanson.

To help both the RBA and Australia, if the Albanians are willing enough to do so, much more is needed than dealing with capital gains tax in the May budget.

We need to target the building trades much more seriously in our immigration policy and we need governments to commit to doubling the percentage of social/public housing stock. We have created a group of Australians who will never be able to buy their own home and be adequately cared for by private landlords.

Otherwise, interest rates and unemployment will increase, people will become even more disgusted with mainstream parties, and living standards will continue to decline.

Australia is getting worse