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One of the Reserve Bank’s biggest worries about the economy may just be statistical noise, with a former senior official of the bank arguing Australians have not suddenly become lazy and unproductive.
Westpac chief economist Luci Ellis, who was an RBA assistant governor only a few months ago, said on Friday the Reserve’s concerns about falling productivity and what it meant for wages growth could be wrong.
Westpac chief economist Luci Ellis says the apparent fall in productivity may be statistical noise.Credit: Janie Barrett
As recently as this week, the Reserve Bank has noted that without a lift in productivity, any ongoing wage increases will only add to the nation’s inflationary pressures, possibly requiring more increases in official interest rates.
Official statistics suggest productivity is falling at its fastest rate on record. The most recent national accounts showed GDP per hour worked crashed by 3.6 per cent over the past 12 months.
But Ellis said with so much change occurring across the economy, from the sharp lift in migration to the large movement of people between jobs, some of the apparent collapse in productivity might be nothing but mismeasurement in the national accounts.
She said the impact of the COVID-19 pandemic and how this affected the types of jobs taken on by Australians, was also a likely factor in the drop in productivity.
“In other words, people have not individually become less productive; there are simply relatively more low-paying jobs than before, which account for less GDP per hour. If true, this is a level shift effect and should not have a lasting effect on growth in productivity,” she said.
The Reserve Bank has lifted the official cash rate from 0.1 per cent in May last year to 4.35 per cent. Financial markets expect the bank to use its first meeting of 2024 to lift rates to a 13-year high of 4.6 per cent.
Ellis cautioned that while a large lift in wages growth without an improvement in productivity would be reason enough for the Reserve Bank to consider an interest rate rise, it had to be sure it was not just reacting to statistical noise.
“Given how little room for manoeuvre the RBA has in the face of upside surprises on inflation, their concerns are understandable. But neither should they assume that Australian workers have mysteriously become less productive,” she said.
The RBA will get another insight into the nation’s inflation threats next week with the monthly consumer price index to be released by the Australian Bureau of Statistics.
Analysts believe the monthly inflation rate, which is measured slightly differently from the long-established quarterly consumer price index, will fall from 5.6 per cent in September to 5.2 per cent in October.
Capital Economics’ head of Asia-Pacific, Marcel Thieliant, said while financial markets believed the Reserve Bank would lift rates again, there were signs inflation might fall faster than expected.
“Business surveys suggest that inflation is slowing more quickly than the bank is anticipating. Accordingly, we still think that the bank’s next move will be a rate cut,” he said.
Crimping the ability of Australians to spend is the growing federal tax take.
Finance Department figures released on Friday showed the federal budget deficit to the end of October was $9.1 billion smaller than forecast, largely due to a surge in personal income tax.
In May, Treasurer Jim Chalmers forecast a budget deficit of $13.9 billion for 2023-24 after a surplus of $22.1 billion in the just-completed financial year.
To the end of October, the government had collected $8.1 billion more in personal income tax than it had been expecting. It had also raised an additional $1.7 billion in company tax. Spending was $800 million lower than forecast.
Chalmers is due to release the mid-year budget update early next month.
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