Productivity slump shouldn’t derail inflation task: RBA
Michele Bullock has described herself as a ‘productivity optimist’ and says lacklustre growth shouldn’t throw off the task of returning inflation to target.
Reserve Bank of Australia governor Michele Bullock addresses the House of Representatives Standing Committee on Economics as part of its review into the RBA's 2023 annual report. Photo: AAP Image/Lukas Coch
Staff layoffs are not necessarily the answer to driving much-needed productivity growth, says the head of the Reserve Bank of Australia.
Michele Bullock labelled herself a “productivity optimist” at her first parliamentary hearing as governor of Australia’s central bank and said she was hopeful the measure would pick up.
Weak productivity growth has been flagged as a risk to the task of returning inflation to the 2-3 per cent target range in a timely fashion.
Wage increases in the absence of productivity growth means businesses are producing less output with the same amount of input, keeping upward pressure on prices that firms want to charge to maintain profit margins.
Bullock said there were “good reasons to think that (stronger productivity growth) will return and it doesn’t just mean laying people off”.
“It means investment in technology, it means investment in more efficient ways of doing things,” she said.
Businesses were investing in technology, which was one reason for Bullock’s optimism.
She also said the recent weakness in productivity was probably a by-product of the pandemic and shifts in the economic cycle and was likely temporary.
“One year of high unit labour cost does not mean that we’re going to be derailed,” she said.
“But if it was to continue over a number of years, then yes, it’s going to be challenging.”
At the board’s first monetary policy meeting of the year, the cash interest rate was left unchanged at 4.35 per cent, as was widely expected in the wake of signs inflation was easing.
The consumer price index fell to 4.1 per cent in the 12 months to December – its lowest level in two years – from 5.4 per cent in the year to September.
Yet the job of getting inflation under control was not complete, Bullock confirmed.
“One thing that has not changed since our previous hearing in 2023 is the challenge presented by high inflation,” she said.
“We all remain acutely aware that the cost of living is rising much faster than it has over recent decades.”