Several solutions can help to mitigate the demand and need for wages to be linked to inflation, writes UNSW Business School's Mark Humphrey-Jenner.
Cost of living pressures have increased, but this is a global issue. US Consumer Price Index (CPI) reached an all-time high of 288.66 points in April. In Australia, CPI rose 2.1 per cent in the March 2022 quarter and 5.1 per cent annually –the largest quarterly and annual rise since the introduction of the goods and services tax (GST). The Australian Bureau of Statistics (ABS) attributed the increase to higher dwelling construction costs and fuel prices.
Why is this increase a significant issue? First, a higher CPI indicates rising inflation: if there’s inflation—when goods and services cost more—the CPI will increase. When inflation goes up, the value of a currency declines over time. So, people on fixed wages and who have cash savings will be hurt by inflation.
Secondly, this inflation has caused ALP leader Anthony Albanese to say he would support the minimum wage (currently $20.33 an hour) increasing 5.1 per cent to match inflation. However, business groups have decried such a push. Similarly, the Reserve Bank of Australia (RBA) has warned against tying wages to inflation.
Labor’s comments have sparked worries of a wage-price spiral, in which wages push up inflation which pushes up wages in a vicious cycle.
But the situation is complex. Many employers have tried to underpay employees for an extended period. Many employers...
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