Australian companies have benefited from rising prices. Workers? Not so much Greg Jericho

TGDP data for the March quarter look quite good, but hide a massive shift in the economy from employees to companies and profits. A few weeks ago, when I was writing about the latest wage figures, I noticed that while GDP data was useful, the problem was “GDP can’t be eaten.”

It was never clearer than the data for the March quarter, which showed strong overall growth but a shocking outcome for workers.

Growth of 0.8% in the quarter significantly exceeded expectations and annual growth of 3.4% is the type you would like to see in the recovery:

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And yet our attempts to catch up with the pre-pandemic trend level have faltered a bit. At the end of last year, annual GDP was 2% lower than the pre-pandemic trend; it is now 1.7% lower. At this rate, we will catch up next year only at this time:

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As during the pandemic and recovery, household spending was a major driver of the economy, contributing 0.8 percentage points to the March quarter. The accumulation of stocks that will hopefully be bought and used has also added a percentage point.

Government spending has also helped the economy, although much of the increase was due to flood relief in New South Wales and Queensland and the ongoing purchase of rapid antigen tests.

Overall, the domestic economy grew relatively strongly, but on the trade side we lost.

In the first three months of this year, our import consumption increased by 8.1%, while the volume of our exports decreased by 0.9%. Overall, net exports increased by 1.7 percentage points of GDP.

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This is not so bad, given that our import purchases mean we are spending well. But the problem is that the cost of everything is rising.

The Australian Bureau of Statistics estimates that import prices rose by 19% last year, while the cost of building and renovating homes rose by 11.4% – the fastest increase since 1989, with the exception of the introduction of GST:

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So prices are rising and rising fast.

But this is where we begin to find out who benefits from it, and why the fact that the economy is growing so well is obscuring what is really happening.

During the election campaign, as Anthony Albanese said he would support the Fair Labor Commission, which would increase the minimum wage by 5.1%, there was a lot of stupid talk of a return to hyperinflation in the 1970s or during the Weimar Republic.

These latest numbers provide great reality control to such misleading comments.

In March, real (non-agricultural) labor costs fell by 2.3%. Outside the June 2002 quarter, which was ravaged by the pandemic, this is the largest quarterly decline since 2016 and the second worst decline in more than 20 years.

Real (non-agricultural) unit labor costs are now 5.3% lower than before the pandemic:

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Surely the proposals that wages drive inflation should have at least some evidence?

But if wages and total labor costs are falling in real terms, then how is the economy growing?

To be honest, we received a response on Tuesday, when the latest Business Indicator survey showed that profits rose by 10.2% in the March quarter, while total wages rose by only 1.8%.

The big reason is mining.

The huge rise in mineral prices and the relative lack of need to pay for additional workers in the export phase caused an explosion of mining profits:

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Last year, mining profits increased by 48%, while their labor costs increased by only 11.7%.

This has led to corporate profits, which now account for a record 31.1% of national income:

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According to the statistical office, “Australian companies have benefited from rising prices.” Australian workers? Not so much.

We still spend a lot. Household consumption grew by 1.5% in the quarter, largely due to our renewed ability to eat outside, travel and enjoy recreational and cultural activities. We also buy clothes, home furniture and equipment and cars in bulk.

But even though there has been a strong increase in travel and meals, it remains well below pre-pandemic levels:

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The increase in spending was largely driven by households reducing their savings – from 13.4% of income to 10.1%.

The savings rate has almost returned to pre-pandemic levels:

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This suggests that household spending gains are coming to an end by reducing their savings. This means that in order for household consumption to continue to grow strongly, we will in fact need household income to continue to grow strongly.

But as interest rates continue to rise, households’ ability to continue spending will weaken. And when inflation concerns are at the forefront, the pressure to curb wage growth will increase.

And yet, as these figures show, corporations have benefited from rising inflation; and unless wages rise faster than they do today, the story of our economy will continue to be where workers receive less and less of their fair share.

Greg Jericho is a Guardian columnist and political director at the Center for Future Work

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