Sunday 8 May 2022 08:26 AM Waleed Aly told to apologise over 'incorrect' comments about cost of living, ... trends now

Waleed Aly has been told to apologise for his 'incorrect' claim that the only way to stop inflation from rising is to keep wages low.

'It's very hard to think of a single measure for cost of living that doesn't make the problem of inflation worse,' Aly said on ABC's Insiders program on Sunday. 

He said 'wage stagnation... so that wages are declining in real terms, is actually the thing that might keep inflation under check'.

But CoreData Research economist Andrew Inwood said Aly was making an assumption that Australia's rising inflation was 'broad based growth-driven inflation' instead of being heavily affected by the global supply chain.

Social media commenters also said Mr Aly needed to issue 'a retraction and correction', and his claims were 'blisteringly incorrect'.

Mr Inwood said the supply chain was being squeezed by increased prices and reduced supply from China, and Russia's invasion of Ukraine, which was affecting global food and fuel prices.

'Measuring inflation is complex and really important because it's one of the great indicators of the general health of a country's economy,' he said.

'It's important for a government to try and keep inflation in its target range of between two per cent and three per cent because that means the economy is growing but not overheating.

'At the moment inflation in Australia is running at just over five per cent, or twice what it probably should be which is attracting a lot of attention – particularly after a long period of very low inflation and particularly when we are weeks out from a highly contested federal election.'

Aly, who comes from a legal, not economic, background, claimed increased productivity was also not the answer to inflation as 'even that, to the extent that puts more money in people's pockets, that's going to be inflationary'. 

Mr Inwood, who is an economist, said the challenge was that 'inflation can come from three areas – wages growth, productivity or external costs rising'. 

'At the moment the biggest drivers of inflation are coming from the things that we import like petrol and fertiliser, which are driving up the costs of domestic transport and agriculture,' he said.

He said transport and agriculture were the hardest hit by inflation - fertiliser from China was $400 a tonne about six months ago and is now nearly $1,100 a tonne.

Mr Inwood said the Reserve Bank of Australia calculated inflation by looking at a basket of 11 everyday costs ranging from housing (the biggest, making up 23 per cent of the cost) to communication (the smallest making up two per cent).