The mask mandate may have taken some of the edge off consumer activity in WA over the Christmas season, but retail spending to the end of 2021 appears to have remained strong.
The mask mandate may have taken some of the edge off consumer activity in Western Australia over the Christmas season, but retail spending to the end of 2021 appears to have remained strong.
WA’s consumers will have spent $2.4 billion over the post-Christmas period according to forecasts from the Australian Retailers Association.
This is up 3.3 per cent on 2020 and a fifth higher than the same period in 2019.
As we’ve foreshadowed in earlier commentaries, however, the continued strength of consumer demand and the shortage of skilled labour are adding to inflationary pressures in WA.
We’ve seen prices rise by 3.2 per cent over the year to September 2021, driven by growth in rental prices, fuel costs and the prices of new motor vehicles.
The price of fuel is the highest in recent history as a result of rising crude oil prices, compounded by an AUD/US exchange rate which has risen 9 cents over the last year (now $US1.39).
Bottlenecks in global supply chains have also driven higher prices in durable goods, especially in furniture, audio visual and computer goods and new motor vehicles.
And the upward pressure on prices is likely to continue through 2022.
Perth’s consumer prices are expected to grow by 2.5 per cent in 2021-22 according to the WA government’s mid-year financial projections released in December.
This is 0.75 percentage points higher than the 1.75 per cent consumer price inflation projections in the 2021-22 budget.
And what about wages growth?
Strong consumer demand coupled with skills shortages are starting to drive wages growth in the private sector.
Wages for private sector workers increased by 2.2 per cent in WA in the year to September 2021.
This is the highest annual increase in private sector wages since June 2014 and compares to a much lower annual public sector wages growth of 1 per cent over the year.
However, the McGowan government’s commitment to scrap the wage cap for public sector workers will push overall wage inflation higher in the coming year and this is reflected in the government’s own forecasts.
The government’s mid-year financial projections in December 2021 included an upward revision to wages growth.
Annual wage inflation is now projected to hit 2.5 per cent in 2021-22, up 0.25 percentage points on the 2021-22 budget assumptions.
And the government expects wages to grow by a further 2.75 per cent in 2022-23 as economic activity accelerates, adding 0.5 percentage points to the 2021-22 budget projections.
So, wages will at least keep pace with prices over the coming year.
This may be good news for workers, but this offers little comfort to the state’s poorest households.
Price inflation creates potentially severe cost of living pressures for financially vulnerable families and those coming into 2022 without a job.
Private sector rents have been driven to historic highs by low vacancy rates, and this lack of affordable housing compounds the risks faced by families for whom government payments are their main source of income.
The federal government needs to ensure that welfare payments and income supports keep pace with the rising cost of living and afford adequate protections to the most vulnerable sections of our society.
• Alan Duncan is director, Bankwest Curtin Economics Centre
