Australian wages finally outstrip prices

Wages have been rising much faster than prices over the past year.

That is clearly documented in figures just released by the Australian Bureau of Statistics.

These showed that average weekly earnings rose by 4.4 per cent in the 12 months to the end of February, on seasonally adjusted figures.

That includes a rise of 1.1 per cent between November and February.

Price figures are not directly comparable, because they are taken over different periods.

But that is not too important.

The Bureau’s latest figures show Australian prices rising by 1.6 per cent in the year to the end of March.

So wages rose almost 3 times as fast as prices, over the past year or so.

That looks like a big development.

It is.

Especially for families used to wages chasing prices.

So what, really, is going on?

Who is winning?

Who is losing?

To answer those questions, we need to go back to Economics I.

That tells us prices are set by a mix of supply and demand.

Australia’s experience, over recent decades, has mostly  been one of rapidly growing population.

That, in itself, has produced high demand.

So Australians became used to seeing the price of homes, food, cars – and much else beside – rising constantly.

Since the crash of 2008, though, we have become much more cautious, in our spending.

That is largely due to perceptions of job insecurity, in the rumblings that followed the crash.

Europe’s debt issues have been particularly worrying.

So, mostly, we, are saving more and spending less.

Australia has sunk into a multi-speed economy.

Demand for our iron ore and coal is still high, although even in these areas, prices  have passed recent peaks.

The nation’s shopkeepers – and builders – have had some very tough times.

That has led to widespread price cutting.

Signs offering “20 to 50 per cent off” are everywhere in our stores.

Home building, particularly, has slumped.

Only multi-storey construction projects are showing any signs of life, in most Australian capitals.

Demand for workers, though, has remained relatively strong.

At 4.9 per cent, Australia’s current inflation rate is just a fraction of those seen in many other advanced western countries.

The mining boom has, effectively, put a floor under the nation’s job market, so far.

Widespread perceptions of job insecurity, though, are not entirely misplaced.

The Federal public service, for example, once seen as a lifetime employer, is now planning to cut more than 4,000 jobs.

The Federal government’s determination to get its budget back into surplus hastened that process.

So while most Australians like to see wages outpacing prices, many are not advantaged by the kind of economy, in which that can happen.

Times are still tough, for many.

That must be remembered.

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Greece on the edge

Efforts to form a new Greek government appear close to collapse, but talks will resume today.

If they fail, as three previous attempts already have, Greeks will be forced to vote again, in fresh elections next month.

The left-wing Syriza bloc – the second largest in parliament – did not attend the latest talks, saying it would not join any coalition making further cuts.

Syriza rejects the terms of the EU/IMF bailout, which demands more austerity.

The deepening crisis could see Greece forced out of the EU and return to its previous currency, the drachma.

One report says Greece now has only enough cash to meet pension payments – and other commitments – for another six weeks.

“Things are very difficult. I’m not optimistic,”  Evangelos Venizelos, leader of the Socialist Pasok party, said after the latest talks.

Meanwhile, Greece’s wait goes on.

One proposal under discussion is that of the president to form a government of technocrats, made up of what are described as “distinguished and non-political figures”.

That has received a mixed reaction from some parties.

They know that many Greeks resent the country’s outgoing prime minister for being an appointed technocrat rather than an elected leader. However Greek politicians appear too divided to serve together in a coalition.

They are split over whether to adhere to or reject Greece’s bailout agreement and further cost-cutting.

If last-ditch talks fail, Greece will face fresh elections, prolonged political instability and possibly a slide towards an exit from the euro. Greece’s president appears determined to try everything he can to avoid it.

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Rate cut hopes rise

Producer prices eased in the March quarter of this year, making a rate cut on Tuesday next week more likely.

That’s when the Reserve Bank board meets to review rates.

The Australian Bureau of Statistics reports that final stage producer prices fell by 0.3 per cent in the first three months of this year and rose by a bare 1.4 per cent, in the 12 months to the end of March.

The National Australia bank also says that fruit and vegetable prices fell in the March quarter and growth in housing prices had been “fairly subdued.”

The NAB noted, too, that there has been “continuing weakness” in retail price inflation.

It is predicting that fresh consumer price index figures, which the bureau is to release on Tuesday this week, will put core inflation at 0.6 per cent for the March quarter.

This would leave core inflation for the year at 2.3 per cent, a level comfortably within the Reserve Bank’s target range of 2-3 per cent, over the course of a business cycle.

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Holden wins agreement with China

General Motors Holden has secured an agreement to design and engineer two new vehicles for the huge Chinese market.

The Minister for Industry and Innovation, Greg Combet, congratulated the car maker, but said this would not have been possible without the Federal government’s earlier support for the company.

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Confidence slips as…

Australians are now deeply worried about their country’s economic prospects over the coming five years.

This was the main reason for a fall in consumer confidence, registered in a Roy Morgan survey, that has just been published.

Gary Morgan, who released its results, suggested that the Reserve Bank’s decision this week to keep interest rates on hold might well have been mistimed..

“It can only be hoped that the Reserve Bank’s failure to act early is not seen later as a policy error,” Mr Morgan said.

The Housing Industry Association also argues that Australia’s interest rates should have been cut.

“New home building has been hampered by interest rates that have been too high for too long…” Andrew Harvey, a senior HIA economist said.

A HIA study, also published today, warned that Australia’s builders still  face “further deterioration” in their industry in the months ahead.

It predicted a 5.9 per cent fall in new housing starts this year, after a fall of 12.8 per cent last year.

The Bureau of Statistics also reported that Australia’s trade was once again in the red, in February, despite a huge surge in wheat exports that month.

Exports fell by 2 per cent, on seasonally adjusted figures that month, as commodity prices weakened and demand eased.

The Bureau also reported that Australians spent 4 per cent less on imports in February, than they they had the previous month.

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Wheat exports soar, but we’re still in the red

Despite huge wheat exports, Australia chalked up a $480 million trade deficit in February.

However that seasonally adjusted figure, published by the Bureau of Statistics, was a significant improvement on the January deficit of $971 million.

The value of Australia’s exports fell by 2 per cent in February, to $24.4 billion, on seasonally adjusted figures.

Australia’s imports, during the month, were worth $24.9 billion, a fall of 4 per cent from the January result.

On  trend estimates, though, the $28 million surplus, seen in January, was replaced by a $451 million deficit.

The Bureau also reported that Australia exported $2.4 million tonnes of wheat in February, the highest monthly level in 9 years.

That was a 13 per cent rise on the comparable figure for January.

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Builders demand rate cut

Australia’s builders want an immediate cut in the nation’s home loan interest rates.

They made their demand  on the eve of a Reserve Bank board meeting, which will review rates.

It was prompted by a sharp fall in home loan approvals last month.

The Statistician reported that, on seasonally adjusted figures, home building approvals fell by 7.8 per cent  in February, to a level 15.2 per cent below that seen in the same month last year.

There was  a 41 per cent plunge in New South Wales.

The building industry’s response was blunt.

“ The time for contemplation is over,” Harley Dale, the chief economist of the Housing Industry Association said.

“Australia’s interest rate settings are clearly too high,” he added.

The fall, in February, took home loan approvals in Australia to their lowest level since March 2009.

Other data, just released showed that Australian manufacturing has also moved into negative territory.

An index, published by the Australian Industry Group, showed a 1.8 point contraction in March.

Clothing, footwear and furniture factories were hit particularly hard.

New orders fell by 3.5 points.

Economists admit that the strong $A is making Australian manufacturers less able to withstand competition from foreign factories.

Innes Willox, of the AI group, described the exchange rate pressure on local factories as “relentless.”

“The fragility of the sector highlights the importance of the Federal budget in maintaining programs that build productivity,” Mr Willox warned.

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This is just the “first taste” – Swan

The mining boom is just “the first taste” of the prosperity awaiting Australia  in the Asian Century, which now lies ahead,  the Federal Treasurer Wayne Swan says.

Addressing  the Australia China Business Council in Melbourne, Mr Swan said:  “Australia stands right at the centre of a transformative, defining shift that will shape the 21st century.”

Over the next five years, the IMF expects China to drive about one third of global growth and that  Asia, more broadly, “would drive more than half.”

An increasingly prosperous middle class in Asia would demand more consumption goods and more services.

“Asia will demand more and better consumer goods – like complex consumer durables and high-end electronics which were previously available only to the wealthy in society,” Mr Swan said.

“And they’ll demand more sophisticated services – both at home and abroad. Education. Recreation. Healthcare. Financial services. Travel.”

However Mr Swan said Australia must develop the skills, capital and resources that would be needed to equip it to meet the challenges these developments would present.

“… we must continue to build our reputation as a high-technology, low-carbon economy – moving up the value chain in product and service markets to supply a rapidly middle-classing Asia,” Mr Swan said.

“But what really matters for our economic relationship is the drive of businesses and people to establish their own relations – their own friendships – in the region.

Mr Swan said Australia could also advance its prospects, in the Asian Century through business-to-business and people-to-people links.

“It will be the friendships made at school, the enjoyment of conversing in a common language, and the respect formed in conducting repeat business that will sustain our engagement with Asia into the future,” he added.

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