Inflation data sounds warning for overheated wage growth

The latest inflation data released today serves as a warning of potential implications of increasing wage growth, says ACCI chief executive officer Andrew McKellar.

The latest quarterly figures, as well as monthly data, show that the rate of decline in inflation has slowed.

Wage growth is a major contributor to inflationary pressures. Recent Treasury analysis shows that wage growth made up almost two thirds of headline inflation in a year.

As it considers the Annual Wage Review, the Fair Work Commission must be cautious that any decision to increase minimum and modern award wages does not reignite inflation.

An increase of not more than 2 per cent is fair, reasonable and responsible. Any increase must be linked to productivity otherwise higher inflation will last longer, causing much greater pain than is necessary for Australian households and businesses.

In the upcoming Budget, any additional new spending measures, particularly cost of living relief, must be very targeted to avoid further adding to inflationary pressure and delaying the return to the 2 to 3 per cent inflation target range.

ABS data released today shows the Consumer Price Index (CPI) fell to 3.6 per cent in the March quarter 2024, from 4.1 per cent in December 2023. Yet, the rate of decline has slowed from that seen in the previous year.

On quarterly basis, there was a notable increase in inflation, with the CPI up 1 per cent, compared to an increase of 0.6 per cent it the December quarter.

Monthly data shows inflation has levelled off at 3.5 per cent year on year in March, following 3.4 per cent in both January and February.

The ABS identified rental prices, insurance, healthcare and education as key influences of the latest data.