Reserve Bank warns of wage-price spiral as unions push for pay

By the middle of 2023 the real value of wages would only be at the level they were at the end of 2011, the union peak body said.

“This is the result of nearly a decade of low wage growth and inaction on job security from this government – real wage cuts that will last years and cause lasting damage to the living standards of workers,” ACTU secretary Sally McManus said.

United Workers Union national secretary Tim Kennedy, representing supply chain workers in warehouses and food processing, told AFR Weekend the workforce was “in a grey period where pressure is building”.

“As a consequence of cost of living increases and now the interest rate increase there is a completely different mindset for workers,” he said.

“But the reality is you still have to win those wage increases and that won’t be easy to do. Something has to give. It’s not a neat economic process as the RBA is indicating.”

At the end of last year, Toll warehouse workers had to stage an indefinite strike just to get a 3 per cent pay rise. The UWU is now looking to upcoming negotiations in the supermarket supply chain for signs of change.

Australian Workers Union national secretary Daniel Walton, whose union is involved in bargaining in the offshore resources sector including at Woodside LNG projects, said he was not seeing the appropriate adjustment from employers yet.

“One way or another they’re going to be forced to recognise that the cost of living crisis means any tolerance for wage stagnation that may have existed in the past has well and truly left the building,” he said.

It comes as the Reserve Bank warned about a potential wage-price spiral should unions seek to exploit the lowest jobless rate in almost 50 years to push for extra pay.

“Given the labour market is already quite tight, workers might be more able to demand and achieve higher wages to compensate for the increased cost of living even in the absence of a lift in productivity;” the RBA said on Friday.

“If employers pass these increased wage costs on to consumers, this could result in inflation being sustained at a higher rate than currently anticipated.”

‘Further inflation growth’

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said businesses were already passing on higher costs to customers due to narrowing margins.

“Aggressive wages growth will only spur further inflation growth,” he said.

“With supply chain disruptions set to give way to wages growth as the principal driver of inflation, it is critical that we take a more cautious approach to lifting wages.”

The RBA’s updated forecasts showed it expects the jobless rate to hit 3.5 per cent by early-2023, headline inflation to hit 6 per cent later this year, and underlying inflation to hit 4.75 per cent – with the upward revision in its inflation forecasts the largest in more than 30 years.

Those forecasts assume the cash rate would rise to 1.75 per cent by December this year and keep rising to 2.5 per cent over 2023.

But further upside surprises to the inflation rate could mean more aggressive cash rate rises are needed, and financial markets are currently forecasting a 3.5 per cent setting at this time next year.

“Relatedly, in tight labour markets and given high and rising inflation, workers might seek larger wage increases to compensate for the loss of purchasing power; however, it is difficult to predict how successful these efforts will be and, if they are, how quickly that could occur,” the RBA said.

The central bank said its business liaison survey showed “a marked increase” in firms paying wage rises above 3 per cent. About 40 per cent had already paid more than 3 per cent this year and 55 per cent were expecting to pay that later this year.

“By contrast, only a small share of firms expect to pay wage increases below 2 per cent; the share expecting to keep wages frozen has fallen to a very low level,” it said.

The RBA predicts wage growth, which was 2.3 per cent at the end of 2021, will hit 2.7 per cent by June and 3 per cent by the end of the year.

Official wage data for the March quarter is due to be released on May 18, just three days ahead of the federal election.

However, unions said they were not seeing signs of pick-up in low-wage areas.

On Friday, several hundred bus drivers went on strike in Victoria against private operator Dyson over the company’s refusal to grant them pay rises amounting to an extra 32 cents an hour.

Recycling and packaging giant Visy, owned by billionaire Anthony Pratt, on Thursday increased its pay offer for Queensland truck drivers from 1.5 per cent a year to just 2 per cent, sparking steps towards industrial action.

Maintenance contractor Monadelphous this week put out its proposed pay rises of 2.5 per cent to a ballot of its workforce, despite union opposition.

That agreement is expected to cover up to 400 workers at Woodside’s billion-dollar LNG projects. But unions have accused the resources giant of refusing to approve pay rises for its contractors of more than 2.5 per cent.

The Offshore Alliance, an alliance between the AWU and Maritime Union of Australia, is seeking a 5 per cent a year increase to cope with Perth CPI of 7.6 per cent, followed by 2.5 per cent a year or CPI whichever is greater.

AWU West Australia secretary Brad Gandy accused Woodside of “wage suppression”.

“We suspect Monadelphous understands workers cannot and will not accept a wage increase of 2.5 per cent per year, but Woodside pulls the strings and is engaged in a campaign of wage suppression for all its contractors, not just Monadelphous.”

A Woodside spokesman said, “the negotiations are between the contracting company, their employees and their bargaining representatives”.

“Last year three of Woodside’s major contractors successfully negotiated new EBAs with their employees, reaching outcomes that were acceptable to the contractor organisations and their employees.”

‘Some real problems’

The UWU’s Mr Kennedy said while pay rises differed sector by sector, automatic increases of more than 3 per cent were “definitely not occurring” for trades and low-wage workers.

“I would say that’s constrained to some very particular sectors and not areas we need, like in low to minimum wage areas,” he said. “Unless we get those wages up we’re going to see some real problems.”

Earlier in the week, ANZ chief executive Shayne Elliott told analysts that the bank, which is negotiating its own enterprise agreements, was at a “turning point” as employee expectations had shifted dramatically.

He said 3 per cent was not an unreasonable baseline to think about broader inflation, but it could be higher due to wage growth.

“I would not be surprised if it was even higher than that – 4 to 5 per cent is certainly not out of the question in terms of underlying inflation for the general cost when you think about what we’re seeing in some of the EBAs that are being signed around the market,” he said.

In an analysis of the job market on Friday, University of Melbourne labour economist Jeff Borland said that “it seems to defy logic for stronger wage growth not to start sometime soon if labour demand remains strong”.

“It’s likely that employers’ expectations about the need to pay higher wages are taking time to adjust following a decade of such slow growth in wages – compounded by COVID-19 causing uncertainty about what is happening in the labour market.”