Economic times are tricky, but they’re far from ‘dire’

They occur mainly because an attempt to use higher interest rates to slow an overheated economy goes too far and the planned “soft landing” ends with us hitting the runway with a bump. It follows that the greatest risk we face is that the urgers in the financial markets (the ones whose decision rule is that whatever the US does, we should do) will con the Reserve Bank into raising interest rates higher than needed.

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But I’m sure Reserve governor Dr Philip Lowe is alive to the risk of overdoing the tightening.

He mustn’t fall for the claim that, because a combination of fiscal stimulus and an economy temporarily closed to all imported labour has left us with a record level of job vacancies and rate of labour under-utilisation of 9.6 per cent, the economy is “red hot”.

Is it red hot when almost all the rise in prices is imported inflation caused by temporary global supply constraints? Or when the latest wage price index shows wages soaring by 2.4 per cent a year and all the Reserve’s tea-leaf reading shows wages rising by three-point-something? And (if you actually read it right, which most of the media didn’t), last week’s annual wage review awarded the bottom quarter of employees a pay rise of 4.6 per cent, not 5.2 per cent.

Is it red hot when employers are reported to be offering bonuses and non-economic incentives to attract or retain staff? That is, when they aren’t so desperate they feel a need actually to offer higher wage rates. Or is it when oligopolised businesses are still claiming they can “afford” pay rises of only 2 per cent or so and, predictably, there’s been no talk of strikes?

Is an economy “overheating” and “red hot” when real wages are likely to fall even further? That is, when the nation’s households will be forced by their lack of bargaining power to absorb much of the temporary rise in imported inflation (plus, the delayed effects of drought and floods on meat and vegetable prices)?

And, we’re asked to believe, households will be madly spending their $250 billion in excess savings despite the rising cost of living, falling real wages, rising interest rates, talk of imminent recession and falling house prices. Seriously?

No, what’s most likely isn’t a recession, just a return to the weak growth we experienced for many years before the pandemic, thanks to what people are calling “demand destruction” by our caring-and-sharing senior executive class.

Ross Gittins is the economics editor.