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Early signs the fourth Omicron wave and rate rises are choking the economy



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Quite a lot of Australians have itchy ft proper now.

Westpac information exhibits that Australians are taking advantage of open borders, with shopper bank card spending on airways and inns rebounding over 140 per cent and 120 per cent respectively, since a pointy decline in 2020.

Maybe there’s a basic urge among the many inhabitants to flee actuality.

It is not exhausting to know why, given the most recent official information on wages.

Bureau of Statistics information exhibits a wave of staff at the moment are managing larger bills with much less pay.

The ABS measures the overall quantity of wages going to staff each week and month, primarily based on information employers present.

A man and a woman with backpacks and suitcases walk through an airport with their backs to the camera.
Australians are flocking abroad, regardless of earninging much less. (AAP: Diego Fedele)

In April, Might and June wages fell — down by as a lot as 1.8 per cent in Might.

This is not associated to wage progress, it slightly pertains to whole wages or the wages invoice for employers.

In lots of circumstances, it is down as a result of staff with out sick go away entitlements are having to isolate at dwelling, or they’ve needed to reduce at work for an additional motive.

So employers, on common, are paying much less wages to staff.

It is complicated, proper? As a result of unemployment is beneath 4 per cent and wages progress is lifting, based on the Reserve Financial institution.

The truth, economists say, is that we might already be seeing the early indicators of a broader financial slowdown.

“Whereas the drop [in wages] could be defined partially by the impression of floods, COVID-19 and flu outbreaks, [we] want to look at whole wages falling carefully because it could possibly be an early signal of basic weak point within the economic system responding to excessive inflation and rising rates of interest,” Influence Economics and Coverage Lead Economist Angela Jackson says.

Let’s discover what is going on on.

Australian greenback on the slide

One of many first signposts for slower Australian financial progress is the Australian greenback.

This week the Australian greenback fell beneath US68 cents and moved in the direction of a two-year low as commodities costs tumbled.

The worth of the Australian greenback is essentially decided by the worth actions of commodities like oil, iron ore, coal, aluminium, and zinc – and so they’re all sliding.

On Tuesday, for instance, the worth of iron ore fell beneath $US110 for the primary time since 2021, when the world was nonetheless recovering from the primary Omicron wave.

Commodities costs are falling as a result of there is a real concern China’s economic system will stay weak effectively into subsequent yr, and the US economic system will slip into recession.

If these economies falter, after all, there can be much less demand for commodities (therefore the worth falls).

However the greenback can be seen as a little bit of a bellwether for the worldwide financial setting. Usually talking, the rosier the outlook for the worldwide economic system, the higher the Australian greenback does.

“Its weak point towards the US greenback would not say a lot about our economic system, however it’s indicative of investor concern over the worldwide economic system and particularly China,” Westpac’s senior foreign money strategist Sean Callow says.

And let’s not neglect the impression that totally different international locations’ rates of interest have on the worth of their currencies.

Regardless of super-sized will increase within the Reserve Financial institution’s money charge, different international locations, particularly the USA, have been extra aggressive with their financial coverage.

Funding {dollars} are drawn to international locations with comparatively larger rates of interest.

That brings the dialog again to inflation.

Inflation is not budging … but

Australia has an issue with inflation proper now, like most different developed international locations. 

The Reserve Financial institution of Australia says a lot of it’s being generated abroad, however the financial institution can be seeing inflation being pushed up regionally too.