Michele Bullock has faced the Senate Committee on finances to discuss the state of real wages as the Reserve Bank of Australia looks tipped to increase inflation again in November.
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00:00 I want to ask you about wages. There was quite a discussion yesterday with Treasury about
00:04 real wages and what real wages are doing. Does the Reserve Bank have a position or an
00:11 understanding on what real wages have been doing and how that's affecting your inflationary
00:18 outlook and your positions on interest rates?
00:22 Real wages are an outcome of nominal wages and inflation. As inflation has risen, that's
00:32 impacted real wages because nominal wages haven't been rising by as quickly as nominal
00:37 wages, and wages take longer to respond. So that's what's been occurring. Real wages have
00:42 been declining. What I would say, though, is that compensation, if you like, rather
00:49 than—a lot of people focus on the wage price index, which is an idea of how much nominal
00:56 wages are rising. But if you look at actual compensation, that's been rising more quickly.
01:03 Compensation might go up because people change jobs to a higher salary, and we saw that there's
01:10 been a lot of that going on, a lot of churn. It might be that there are bonuses, firms
01:16 giving bonuses to keep people. So real wages, if you just looked at, say, wage price index
01:23 and subtracted inflation, you'd say they'd fallen by, say, 3 per cent. They haven't fallen
01:28 by as much as that if you take into account the actual compensation that people are receiving.
01:33 What is the measure of compensation that the Reserve Bank refers to when they make that
01:38 consideration?
01:39 Well, in terms of what feeds into costs, it's total compensation. But what the wage price
01:49 index gives you is a bit of a feel for what the underlying wage pressures are, if you
01:57 like.
01:58 Yes. But is there an index? Is there a measure? Does the ABS provide something that measures
02:02 total compensation?
02:03 Yes. Compensation of employees from the ABS, yes.
02:07 What about on the other side of the real wages ledger, the inflation measure that you use?
02:14 Do you only refer to the CPI or do you look at living cost indices?
02:20 We typically think about it in terms of the CPI.
02:24 The CPI, so the cost of living, which I know is another measure that the ABS refers to,
02:28 which is higher than CPI right now.
02:31 Yes. So ABS has various cost of living indices for particular cohorts, if you like. So you
02:39 can break it down in that way if you wanted to. But typically when we think about real
02:45 wages, we think about it in the aggregate and we think about it in terms of CPI inflation
02:51 and compensation of employees.
02:53 Yes.
02:54 Okay. Thank you.
02:54 [BLANK_AUDIO]