Michele Bullock keeps telling us productivity is flatlining. How it changes may well determine if the Reserve Bank will tolerate wage rises beyond 3%
If the Reserve Bank’s GDP forecasts about the Australian economy are right, we should be close to a nadir with a sustainable upswing on the way – provided we can get more efficient at what we do.
Productivity growth – a concept that quickens the pulse of economists and almost nobody else – has slowed in Australia and most other developed nations for years.
The Reserve Bank governor, Michele Bullock, has regularly reminded us that productivity – how much value we can extract from a given combination of labour and machines – is flatlining. How it changes may well determine whether the central bank will tolerate annual wage increases beyond 3% without hiking interest rates to cool the economy.
“Productivity is difficult to read at the moment,” she said after the RBA left interest rates unchanged. “It has been influenced by the pandemic, it’s been very volatile.”
“We do expect it to get back towards its trend level in the next year or so, but … if productivity doesn’t improve, then even wage rises of around 3.5% might not be enough to keep unit labour costs contained,” Bullock said.
