Bosses' recovery: wages stagnate as prices rise

December 2, 2009

Do you have that sinking feeling? As though you have to run faster just to stand still? Are you having increasing problems making ends meet? Well, you're not alone. It's official — wages growth has fallen behind inflation. While the economy goes through "recovery", we're going backwards.

The Labour Price Index released by the Australian Bureau of Statistics (ABS) on November 18 showed wages growth slipped to 0.7% in the three months ending September 30. That's even lower than the 0.8% rise for the June quarter.

Meanwhile, the Consumer Price Index for the September quarter, released by the ABS on October 28, showed inflation in the three months to September increased by 1%, up from 0.5% in the June quarter.

This is a bosses' recovery: our purchasing power is falling behind as price increases outstrip wage rises. And the situation will only get worse.

The ABS said the wage outcomes for the September quarter were the worst since the June quarter of 2003, when wages increased only 0.6%.

Over those three months, however, official inflation was zero. So workers didn't lose out. But on the back of big jumps in the cost of utilities in the third quarter of this year, workers' wallets will be feeling rather slimmer.

Worse for pensioners

On November 23, the ABS released its Analytical Living Cost Indexes for Selected Australian Household Types, for the September quarter. This index "reflects changes over time in the purchasing power of the after-tax incomes of households", the ABS said.

Households are divided into four categories: workers, age pensioners, self-funded retirees and other government beneficiaries.

The Analytical Living Cost Indexes showed that the purchasing power of households in which the main income is wages grew in the year to September. According to the statistics, working households increased their purchasing power by 1% over that time.

The reason for the apparent boost, said the November 24 Sydney Morning Herald, is that working households spend 25% of their income on housing and transport costs.

Between September 2008 and 2009, interest rates fell to historic lows, and petrol prices eased. Working households had more to spend on other things.

But even a cursory look at the figures shows that the costs for working households, after falling until the end of June, are now rising again. As interest rates rise, the costs borne by working households increase as well.

The ABS assumes age pensioners spend less on housing and transport. It assumes they own their own home and travel less than workers. As a result, they have not benefited from the fall in interest rates or the moderation of petrol prices. For age pensioners, therefore, the cost of living rose by 2.4% in the year to September 30.

Others on government benefits(the unemployed, disabled and single parents) and self-funded retirees also went backwards, but not as badly as age pensioners.

Worst yet to come?

The minutes of the November 3 Reserve Bank of Australia (RBA) board meeting said it felt that "it remained prudent, over time, gradually to reduce the degree of monetary accommodation". In other words — interest rates would continue to rise, meaning increased housing payments and a tightening budget for those with mortgages, particularly if wage growth continues to stagnate.

And in case we become complacent, RBA assistant governors Ric Battellino and Guy Debelle have both indicated in recent speeches, that the (profit) margins banks receive on mortgages could do with a boost.

"Margins on variable rate housing lending relative to bank funding costs have actually declined a little over the past two years", Debelle told a financial forum on November 19. "The margin between the standard home loan rate and the cash rate has indeed increased, but with banks funding costs rising materially more than the cash rate, the overall margin has declined."

Battellino chimed in on November 25. "On the question of cost", he said, "margins on standard housing loans have, if anything, narrowed a little over the past couple of years, even for the major banks. Two years ago, the interest rates charged by the major banks on new variable rate housing loans were about 190 basis points [1.9%] above their cost of funds. The margin today is slightly narrower."

The effect of the RBA assistant governors' statements was to give banks a "green light to increase mortgage rates" above official interest rate hikes, said the November 20 SMH. The RBA's statements "will make it harder for [federal treasurer Wayne] Swan to argue against future independent rate rises".

The chance of the RBA increasing interest rates on December 1 jumped to 72%, said the November 12 Australian, following the release of unemployment figures for October. And with the "green light" being given to banks to increase their mortgage rates above changes made by the RBA — how high will they go?

Working people can't rely on the compassion of the RBA, the banks, their bosses or the government. Without a concerted fight to increase wages — at a rate well above inflation — living standards will continue to fall. All the evidence points to it: this is a bosses' recovery and workers have to pay for it.

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