The Guardian • Issue #2043

“Wage-price spiral” myth

Reserve Bank of Australia (RBA) Governor Philip Lowe expressed concern that workers would get much higher pay rises in response to inflation, which he claims would fuel more price hikes. He was referring to the age-old capitalist claim that wage rises cause price rises or inflation.

But is this true?

Let’s take a look at the current round of inflation. What caused it?

It is a huge stretch of the imagination to think that wages caused inflation. They have stagnated or even fallen over decades.

There are a number of contributing factors:

Energy prices rose dramatically when the EU and US imposed sanctions on Russia. The sanctions and conflict also impacted the cost of grains, fertilisers, other raw materials, and logistics. The law of supply and demand kicked in, with global corporations taking advantage of shortages to hike up prices and hence profits. The US then sold gas and oil to the EU at highly inflated prices. Australians were also hit by higher energy prices, and other costs of production.

For example, exporters of Australian coal and gas have reaped an estimated additional $85 billion in 2021-22. Australians get little if any benefit in tax revenue as these corporations ship their profits offshore. Whitehaven’s thermal coal used to generate electricity was selling at $202 a tonne in the first half of 2022. That rose to $552 a tonne.

The outcome can be seen in rocketing profits of energy companies. For example, the reported post-tax profits of Santos, a major exporter of gas and oil, $3 billion in 2022 – up 221 per cent on the previous year. This was at the expense of households and businesses, especially smaller businesses that are not in a position to raise prices.

Higher energy prices and global shortages of containers pushed up the cost of trade, production, and transportation.

Food prices were impacted by floods as crops were destroyed and transportation disrupted.

The RBA’s successive interest rate increases increased the cost of housing. (See page 1)

Another contributing factor to inflation is the massive increase in military expenditure on war preparations. The military industrial complex makes super profits while syphoning off and pushing up the price of materials used in the production of other goods and services.

Wage rises are NOT driving inflation. Real wages fell by 4.5 per cent last year.

Profit-gouging is driving it up.

Inflation involves a massive transfer of wealth from workers, pensioners, and others on fixed incomes to monopoly corporations. It reduces the purchasing power of wages – wage reductions by stealth.

Real wage rises now!

Fight back now!

Join your union!

Join the Communist Party of Australia!

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