A terrific primer of the economic issues facing our country and the international pressures being exerted.

The Reserve Bank must not only look at our Australian economy but take into consideration the inflationary pressures caused by factors outside the control of our country and it's leaders. This is a point Swanny and co are unable to comprehend as they continue to blame the current round of inflationary increases on the previous government while Howard and co had no control over the price of oil (supply curtailed by the gulf oil cartel) and food (due to drought) - BTW these are two things that Krudd promised to fix during the campaign but now has declared too hard.

The fact that the labor governments are not willing or unable to take on the pain of opposing unions for their economic myopic self serving desires will be the sinking of our economy. As Henry says, the AWAs were an excellent way to let the employers counter the union demand for inflationary wage increases while maintaining a high employment rate. Krudds team of not so brilliant conservative economic managers has certainly shown us where they stand. Now they have a turn at the economic helm to prove their mettle.

Hang on for a very bumpy ride ahead.

"Reserve may face a surge in wages".
Oh I doubt it, after all, there have been no genuine wage rises for two and a half decades whilst every other section of society has been doing very well, including the CEO's who have had 400 rises which are substantial rises. These CEO's have had so much money thrown at them that they created liar loans, preying on the unwary to take out a house mortgage in the sub-prime mortgage crisis. A crisis they have inflicted on their economic order wordwide. As well, rather than genuine wage rises billions of people have been forced to partly live off their credit cards. This too will have enormous ramifications as it will kick in exacerbating the economic order. Now the rich are gambling on food futures so that food will skyrocket out of the reach of multi-millions creating starvation riots. All this they will attempt to blame on workers.
One of the idiocies promoted by people who should know better (but such is their subjective hatred of workers) is that paying workers wages can create inflation! Just as much as paying workers a higher wage causes inflation.

Yes I agree to some extent with johncee1945. It amazes me that economists bring out the tired old mantra of wage rises and inflation in respect of low income workers. Low income workers (often being paid as little as $14-16hr adult wages) are struggling to pay bills and are increasingly getting into debt to pay for essentials. (This week’s SBS Insight program highlighted this issue).

How can raising the minimum wage create inflation when all it will mean is those affected will be able to pay off their debts and bills. Raising the minimum wage won’t see a surge of luxury items on the table but real food and necessities and the odd visit to the dentist.

Where are the outcries when CEOs and those with temporarily popular niche skills in some professional and technical sectors are earning way beyond the minimum wage. While no-one can measure exactly the ‘worth’ of one job over another surely some commonsense could prevail so that the disparity between wages is not so great. I would argue that the wealth and wellbeing of a nation should be measured by the living standard of its poorest members.

The OECD measures underlying inflation by removing volatile components like food, alcohol and petrol in measuring CPI (over which wide swings in prices may be influenced by factors out of our control). And which are also subject to (in the case of petrol and alcohol) government taxes. Mortgage interest rates are also not included in calculating the CPI and I would suggest this greatly devalues the use of the CPI as a wage setting instrument.

If wage setting is to be fairer and more equitable surely a “real cost of living indicator” would be the better measurement.

I am not convinced that wage restraint will keep a proper lid on inflation.

It is often trumpeted that we are a global economy now - to that end, some sources of inflation come from outside the domestic economy. The perpetually spiralling global price of oil runs through everything since there is virtually nothing that can be produced and/or distributed without using petroleum at some stage. The fuel costs of delivery of goods from point A to point B is now double what it was a few years ago. We shopped for groceries tonight. A recent camping trip had left us with a surplus of many of the things we normally puchase - yet our grocery bill was only a few dollars lesss than what it was a couple of years ago.

Living in a resource town, I can state to a near certainty that workchoices had virtually NO EFFECT on booming resource sector wages here - but those at the bottom end of the income spectrum were not so lucky. These are the people workchoices punishes - the people who do not greatly contribute to inflation because they do not earn enough to spend enough to feed it.

Keeping workchoices will not reign in inflation at this point in time - it will just hurt the most vulnerable in society.

I disagree with Jonson that higher wages are inflationary. Free market economists like Milton Friedman would disagree too.

However, that is not to say that excessive wages do not have an impact on the economy. They do.

If labour costs are artificially lifted above the market rate (i.e. above the value of the product or service produced) at best workers' hours are reduced, at worst, they lose their jobs altogether.

The big lesson of the 70s was not that large wage increases caused inflation, but that large wage increases caused mass unemployment.

You can't blame many of the unions for wanting to play catch up though. If they do NOT make claims for wage increases they are not representing their members - inflation is likely to continue even if wages do not rise at this point in time. Total wage restraint will simply see those in the lower part of the income spectrum fall further and further behind the eight ball as the basic cost of living continues to rise but their incomes do not.

I don't accept the union's argument for a so-called "catch up." This implies that their wages have not kept pace with inflation, but this is not true. Based on National Accounts data, real wages grew by over 20% during Howard's term. More recently, the Labour Price Index increased by 4.2% in 2007 while CPI increased by only 3%.

But all that may change next week. The most recent CPI shows annualised inflation at 4.2% (to March q 2008) but the March q LPI will not be released until next Wednesday and average weekly earnings data on Thursday. I expect there will be a lot of attention on how they compare to the current inflation rate. With the Budget release on Tuesday, it could be a very entertaining week.

It is true across many industries outside the resource sector.

Living in a resource town and knowing both resource and non-resource sector workers, I can assure you that wages outside the boom have not kept pace with inflation. Statistics surrounding wages are often skewed because it is not possible to interveiw everyone - the high wages of resource sector workers and skilled tradies (and CEO's who are considered highly paid workers) are all rolled into the stats and serve to bump up the average.

Will argue later - Vicar of Dibley is on.