Inflation, Wages, and The Cost of Living.

Inflation, Wages, and The Cost of Living.

 

According to ABS, the unemployment rate fell in the last month from 5.7% to 5.5%. I believe this is still slightly higher than pre-pandemic levels of about 5.2%. However, leading experts suggest this still is a way off helping stimulate inflation and wage growth. Currently, reports indicate that for the last 12 months inflation is somewhere between 1.1 to 1.5%. The ideal inflation target for Australia, as agreed by the Governor and treasurer is set at 2 to 3%. This is calculated by the ABS and is based on the Consumer Price Index (CPI) – the percentage increase on a sample basket of consumer goods across many categories.

 

What is needed to help boost inflation is a wage increase that encourages consumer spending and therefore increasing prices and economical output. Experts suggest that unemployment needs to fall below 4% to truly help stimulate wages in Australia which will then have a flow-on effect on the cost of goods, inflation, and GDP.

 

At the start of the year, most of us thought that JobKeeper would see many more job losses, some predicting up to 250,000 job losses, instead, the unemployment figure has decreased. This figure is not always an accurate indication as it is skewed by under-employment figures and those employed but not actually working. A fun fact shared by my go-to property analyst, Michael Yardney, was that hours worked in April fell by 13 million hours so unemployment has decreased and we are working less. I like this because I think in this day and age many of us could be working less and still living a good standard of living and yet part of me dislikes it. After all, it highlights that wages may struggle to climb anytime soon. If wages don’t adjust many will have to sacrifice lifestyle luxuries and even the more necessary items may be less affordable to many. i.e., buying a home. Not sure if I have a solution yet it is certainly interesting to understand and reflect upon.

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