PARAGRAPH 1 The Australian labour market in the 1990s went from centralised wage fixing to enterprise bargaining and saw wages grow an average around 3.5 percent each year from 1998 through to the end of 2012 (graph 1),which was during a period that encompassed both the mining boom in the early 2000s and the global financial crisis of 2007 (ref). However a noticeable development in recent years saw sluggish and low rate of growth in nominal wages in Australian as well as other major countries like the United States of America and the United Kingdom (ref).In the middle of 2012 the unemployment rate stood at approximately 5.2 percent and wage growth in the private sector were rising at 2.8 percent that was the last time until five years later …show more content…
Nevertheless a rise in wages would mean rising inflation that will help encourage household consumption and contribute to a growth over the coming years in the level of nominal gross domestic product, which is the monetary measure of the market value of all final goods and services produced in a period of time …show more content…
By the end of 2017 annual wage growth was at 2.1 percent and the inflation rate stood at 1.9 percent (graph 2), just 0.2 percent lower than wage growth (ref). The Reserve Bank of Australia (RBA) is responsible for keeping the inflation rate between two and three percent, so when inflation rises the RBA raise the interest rates allowing for people to save more and companies and households to borrow less making the economy slow down to lower inflation. When inflation falls the RBA lowers interest rates allowing for people to borrow more to spend more improving the economy and pushing inflation higher (ref). Adverse economic consequences resulting in economic crisis can arise from higher inflation rates, including a upsurge in cost of goods and services causing higher living cost and raised interest rates that affect the international market and lower credit ratings. So higher inflation rate slower consumer purchasing power, which is the real value of money will be reduced and consumers will be able to afford fewer goods and services than before. Businesses will be forced to frequently update their prices and consumers will have to devote extra time comparing prices which increases the doubt about the economy, which discourages spending and investment and reducing economic growth and so the nations global competitiveness will be