According to Reserve Bank board member Ian Harper, Australia's economy can run hot while avoiding the runaway inflation that is plaguing much of the world, implying that monetary policy will remain ultra-loose for some time.
In contrast to trends witnessed abroad, such as mass resignations and people departing the workforce, Harper cited Australia's more resilient workforce participation during the pandemic. That, he said, is one of the reasons why unemployment in Australia will take time to decrease to the levels required to start substantial wage growth and price pressures.
Harper said, "with a significant recovery in labour force participation, the likelihood of there being a breakout in wages is very low. What's amazing is that we can run this economy quite strongly without causing inflation even with the borders closed."
While Harper was not speaking on behalf of the RBA, his views are consistent with those of Governor Philip Lowe, who has stated repeatedly that wage growth of "3 point something" is required to keep inflation within the bank's 2-3% target band, which is currently at 2.1%. Despite data showing a significant economic comeback underway following harsh lockdowns along the country's east coast this year, the RBA has maintained its dovish stance on inflation.
Similar spikes in growth have been observed in major economies, but they have frequently been accompanied by soaring inflation as lockdowns eased and rampant consumer demand caught manufacturers of goods and services off guard. While the RBA prefers underlying inflation, the consumer price index increased by 3% in the third quarter, significantly less than the UK's 4.2% in October and the US's annual average of 6.2%.