The latest OECD report is out, confirming higher profits are the leading component of recent inflation in Australia and elsewhere. Yet Philip Lowe and the RBA keep raising interest rates to curb inflation with wages growth as the culprit. What’s the scam?
The scam is that they don’t know any better ways, and their policy options are limited, so they have to blame something.
And over at Treasury, Jim Chalmers is playing politics and blaming the RBA. He, too, seemingly doesn’t know what else to do. Meanwhile, interest rates continue to go up, house prices continue to go up, and cost of living continues to go up. But wages are not so much, and are not to blame. Profits are.
It is rather ironic that former LNP Finance Minister Mathias Cormann – infamous for his inability to speak in public without blaming ‘Labor’ for something – is now head of the OECD which says it’s not about labour costs, but about profit growth.
According to the latest OECD Economic Outlook, over the latest five quarters (to end-2022), higher profits accounted for an average of 51% of the year-over-year increase in the GDP deflator, while higher unit labour costs accounted for only 21%. Labour’s share of total price rises has grown, reaching 37% by the last quarter of 2022 – but is still smaller than the 48% added in that quarter by higher profits.
If we are heading into a recession, it won’t be the one that “we had to have,” but it may well be one that we didn’t need to have, thanks to the RBA.
