Early signs of the fourth Omicron wave and rate hikes are choking the economy

Many Australians currently have itchy feet.

Westpac data shows Australians are making the most of open borders, with consumer credit card spending on airlines and hotels increasing by more than 140 percent and 120 percent respectively since a sharp decline in 2020.

Perhaps there is a general urge among the population to escape reality.

It’s not hard to see why, given the latest official data on wages.

Data from the Bureau of Statistics shows that a wave of workers is now managing higher spending with less pay.

The ABS measures the total amount of wages going to employees each week and month, based on data provided by employers.

A man and a woman with backpacks and suitcases walk through an airport with their backs to the camera.
Australians are flocking abroad, despite earning less. AAP: Diego Fedele

Wages fell in April, May and June, in May as much as 1.8 percent.

This is not related to wage growth, but to total wages or the wage bill for employers.

In many cases this is not the case because employees without the right to sick leave have to isolate themselves at home, or because they have to reduce their working hours for some other reason.

Employers therefore pay less wages to employees on average.

It’s confusing, isn’t it? Because unemployment is below 4 percent and wage growth is picking up, according to the Reserve Bank.

The reality, economists say, is that we may already be seeing the first signs of a broader economic slowdown.

“While the drop [in wages] can be partly explained by the effects of flooding, COVID-19 and flu outbreaks, [we] We need to keep a close eye on aggregate wages as this could be an early sign of general weakness in the economy in response to high inflation and rising interest rates,” said Angela Jackson, chief economist at Impact Economics and Policy.

Let’s investigate what’s going on.

Australian dollar on the slide

One of the first signposts of slower Australian economic growth is the Australian dollar.

This week, the Australian dollar fell below US68 cents, moving to a two-year low as commodity prices plummeted.

The value of the Australian dollar is largely determined by the price movements of commodities such as oil, iron ore, coal, aluminum and zinc – and they are all shifting.

On Tuesday, for example, the price of iron ore fell below $110 for the first time since 2021, when the world was still recovering from the first Omicron wave.

Commodity prices are falling as there are genuine fears that the Chinese economy will remain weak well into next year and that the US economy will slide into recession.

Of course, if these economies falter, there will be less demand for commodities (hence the price drops).

But the dollar is also seen as a gauge of the global economic environment. In general, the brighter the outlook for the global economy, the better the Australian dollar.

“Weakness against the US dollar doesn’t say much about our economy, but it does indicate that investors are concerned about the global economy and especially China,” said Sean Callow, senior currency strategist at Westpac.

And let’s not forget the impact that different countries’ interest rates have on the value of their currencies.

Despite huge increases in the Reserve Bank’s cash rates, other countries, especially the United States, are more aggressive in their monetary policies.

Investment dollars are attracted to countries with relatively higher interest rates.

Which brings the conversation back to inflation.

Inflation isn’t abating…not yet

Australia has a problem with inflation right now, just like most other developed countries.

The Reserve Bank of Australia says much of it is generated abroad, but the bank also sees inflation being driven up locally.

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