The latest inflation data has sparked renewed debate among economists and business leaders. While the headline CPI figure has shown a slight improvement, underlying pressures, particularly in the form of wage growth, continue to pose significant challenges. In this article, we delve into the perspectives of leading experts as they assess the implications of recent economic indicators for both consumers and businesses.
Josh Gilbert, Market Analyst at eToro
“Today’s CPI reading reinforces Michele Bullock’s recent hawkish tone, with inflation coming in ahead of expectations. Although this reading isn’t necessarily a reason to panic and shows that inflation is abating, it highlights that the easing of monetary policy isn’t likely to happen in the short term.
Australia remains a standout among global central banks, while the Fed looks set to cut interest rates next month after Jerome Powell’s dovish take last week, Australia is keeping rates at decade highs after hiking at a slower pace. Imminent cuts from the Fed may signal a change in the RBA’s hawkish stance within the next month or two, but that shift will need to be supported by data – and today’s reading won’t exactly have the RBA excited.
The view of a rate cut by year that markets envisage seems optimistic, but data can change very quickly. We’ve witnessed that in the US recently with the big shift in the labour market that saw a swift repricing of cuts, with the potential for a 50bps cut next month on the cards. The RBA will continue to focus on the quarterly numbers that provide them with more insight, and they will get one more reading before the end of the year, but any significant shifts in critical data points, such as unemployment, could move the dial for the RBA’s path.
For now, we see the RBA keeping rates on hold and maintaining its hawkish stance. Michele Bullock has taken a no-nonsense approach in the last month or so, and this reading isn’t going to inspire her with the confidence to change that.
Luke Fossett, General Manager at GoCardless ANZ
“Australia’s monthly CPI indicator rose 3.5% in July, down from a 3.8% rise in the 12 months to June. This is above estimates but still a potential sigh of relief for both consumers and small businesses, as it may encourage some much-needed economic movement for Aussie small businesses that have continued to struggle with reduced consumer spending, late payments and rising operational costs.
Yesterday’s ABS data showed that there had been nearly 6,700 more business exits in the past 12 months than the previous year, and an increase in the number of businesses that have transitioned from employing to non-employing, indicating that many small businesses have buckled under the pressure of high interest rates.
Today’s data indicated that the RBA will remain cautious but has concluded its aggressive hiking cycle and is now edging closer to the prospect of a rate cut. This will be welcome news for households struggling to make ends meet but also for SMBs. GoCardless data indicates over half (55%) of Australian business leaders were concerned that the number of late-paying customers would increase over this year due to the rise in the cost of living.
Today’s indication that we are now heading for a rate cut – along with the positive impact of recent stage 3 tax cuts, bodes well for small retailers and businesses providing discretionary goods and services. Relief for consumers ultimately means better times for businesses.”
Ben Thompson, CEO and Chief Economist, Employment Hero
“While the latest consumer price index data indicates signs of recovery in the fight against inflation, ‘wageflation’ is real. Median wage growth has spiked 8.8% year-on-year compared to the 4.1% reported by the ABS in May, marking a 12-month high, while the average hourly rate has surged to $42.30* according to our data.
The slight change in inflation from 3.8% to 3.5% will be short-lived if factors like unsustainable wage growth increase. While a small increase in paychecks might feel like a welcome addition to the average household, in the long run, it will only result in further pressure placed on businesses already struggling, with 362,893 closures being reported in the past year. This inevitably means more layoffs, higher prices for everyday goods and services that boost inflation, and potentially more rate hikes.
Our data shows interesting comparisons across age brackets too. For example, over 45s experienced 12% annual wage growth contrasted with 18-24s who experienced 5.8% annual wage growth.
This wageflation is a clear wake-up call for leaders to seriously reconsider their approach, especially with businesses shutting their doors at an exit rate of 14%. Combined with the rising cost of employment, such as superannuation which now sits at 11.5%, to the growing cost of compliance, small businesses simply cannot afford to keep carrying the economy.
The labour market is in desperate need of efficiency that uplifts both employees and employers. That begins with wage transparency; giving jobseekers a realistic understanding of their value in the jobs market, while equipping employers with affordable tools to find, hire and manage staff.”
