We Need To Rein In Those Salary Increases

Last Updated Jun 7, 2010 9:50 PM EDT

Wages have been increasing faster than the CPI over recent years. Even the global financial crisis didn't stop us asking for more money. Perhaps that's why those with a job can afford to spend more on a house. We can't expect such an imbalance to go on forever --- could this be leading us to latent wage-push price inflation?
While the consumer price index (CPI) has increased by more than 2.5 percent only twice over the last six years, public sector wages have consistently increased by 4 percent or more each year. Private sector wage growth isn't trailing far behind either.

The private sector growth has been driven, to an extent, by mining. Their salaries have risen by 51 percent over the last decade, over which time CPI has increased by 37 percent. But the real issue is the public sector, with their customary wage growth expectation creating a 42 percent increase over the decade. The last year alone saw a 4.3 percent increase in public sector wages, despite the economic downturn.

ABS Labour Price Index, Australia, Mar 2010 (6345.0)
What I find curious is how, so far, the increased wages are not having an inflationary effect. Wages should push up the cost of products, which would be demonstrated by a higher CPI. That fact that one seems to be growing without the other can only mean producers have been taking a margin hit to absorb the increased expense --- or getting by with fewer people. If it's the former there's a danger that, as we emerge from the financial crisis, producers try to regain these margins and inflation hits hard.

Whatever happens next, just don't expect a big wage increase as we climb out of the GFC. According to these figures, you've already had it!

Check out the data yourself at the ABS site: Labour Price Index, Australia, Mar 2010