QF reaches agreement with FAs,

[medhead]

I'm confused by your question.

Medhead's explanation is a good basic one. But I'm assuming you already understood that bit..??

Maybe referring to CPI not being as simple as I made out. First, obvious problem is there are a whole range of CPI measures. Got stuffed around by a union on that one myself, the union wanted to accept a lowEBA offer on the basis of a low CPI, I and a few other tried unsuccessfully to tell them to use a higher more representative (in our opinion) CPI.*

Then there is also that CPI can include wages - so that can create a vicous circle, wages trying to beat CPI, which increases with wages. :shock: Finally CPI is really an index rather than a percentage as such. This can have some interesting outcomes as I learnt when trying to calculate a reasonable increase in rent for my investment property.

* cats out of the bag I have reason to hate useless unions as well. :shock:

 

[dfcatch]

Maybe referring to CPI not being as simple as I made out. First, obvious problem is there are a whole range of CPI measures. Got stuffed around by a union on that one myself, the union wanted to accept a lowEBA offer on the basis of a low CPI, I and a few other tried unsuccessfully to tell them to use a higher more representative (in our opinion) CPI.*

Then there is also that CPI can include wages - so that can create a vicous circle, wages trying to beat CPI, which increases with wages. :shock: Finally CPI is really an index rather than a percentage as such. This can have some interesting outcomes as I learnt when trying to calculate a reasonable increase in rent for my investment property.

* cats out of the bag I have reason to hate useless unions as well. :shock:

Yes - CPI is a simple calculation from Year 1 to Year 2. But becomes (still simple, but not quite as straightforward) when going from Year 1 to, say, Year 4.

And very important to exclude the wages input from the CPI calculation

(well... depending on which side of the discussion you sit at the time )

 

[milehighclub]

Just to point out that the 3% doesn't just apply to their base pay. It applies to all overtime, band payments etc too.

There are also other financial benefits in the agreement in addition to the 3%

There will also be the introduction of fourth pay increment for CSM's which will be 3% higher (and subject to the 3% pay rise as well)

So all these little extras on top of the 3% are probably enough to cover that 3.6% CPI

 

[medhead]

(well... depending on which side of the discussion you sit at the time )

or one's definition of useless. Rolling over and doing nothing for my hard earned is useless.... Especially when they then get someone in a different area but with similar quals and skills double. :evil: bitter much?

 

[medhead]

Just to point out that the 3% doesn't just apply to their base pay. It applies to all overtime, band payments etc too.

There are also other financial benefits in the agreement in addition to the 3%

There will also be the introduction of fourth pay increment for CSM's which will be 3% higher (and subject to the 3% pay rise as well)

So all these little extras on top of the 3% are probably enough to cover that 3.6% CPI

3% increments!? Wow that's not big.

 

[samiam]

Drifting O/T slightly to answer my own leading question...

A couple of things go against suggesting that a pay increase rise below the CPI is an effective pay cut.

In the late 90's, the CPI was restructured to represent a general index of price inflation, rather than a cost of living. The ABS express that "the CPI is often loosely called the "cost-of-living index", but strictly speaking this is not correct'.

Also, wage increases were previously linked to inflationary measures through the "Accord" (Hawke era), which took into account the CPI (ie. cost of living, at the time), in setting an increase in wages.

However from the late 90's this central wage-setting system has gradually moved to a decentralised enterprise level bargaining system, effectively decoupling the original link between wage increases and rises in the cost of living (of which the CPI, strictly speaking, was no longer a measure). Sure, CPI and 'cost of living' is often rolled out in enterprise bargaining, however that is applying a macro measure at a local level, when there are many local variations involving an enterprise that are not taken into consideration, conversely, when CPI is calculated at the macro level.

The ABS website goes on to say "The appropriateness of applying the CPI to individuals, or sub-groups of the population (eg, in adjusting their income or other money amounts involved in contractual arrangements), will depend among other things on the extent to which their particular expenditure pattern resembles the CPI weighting pattern. The significance of any divergence in the expenditure pattern of that particular individual or group from the average will, of course, depend on the relative dispersion of price movements. If the dispersion happens to be low (ie, all prices are changing at similar rates) the difference in expenditure patterns will be immaterial."

Comparatively, inflation was sustained at greater than 13% in the mid-70's, and wages increases did not match that level..

So, if a pay increase is less than inflation, is this an effective pay cut? One way to call it, but not effectively.

Is it a decrease in purchasing power? More likely.

 

[dfcatch]

Drifting O/T slightly to answer my own leading question...

A couple of things go against suggesting that a pay increase rise below the CPI is an effective pay cut.

In the late 90's, the CPI was restructured to represent a general index of price inflation, rather than a cost of living. The ABS express that "the CPI is often loosely called the "cost-of-living index", but strictly speaking this is not correct'.

Also, wage increases were previously linked to inflationary measures through the "Accord" (Hawke era), which took into account the CPI (ie. cost of living, at the time), in setting an increase in wages.

However from the late 90's this central wage-setting system has gradually moved to a decentralised enterprise level bargaining system, effectively decoupling the original link between wage increases and rises in the cost of living (of which the CPI, strictly speaking, was no longer a measure). Sure, CPI and 'cost of living' is often rolled out in enterprise bargaining, however that is applying a macro measure at a local level, when there are many local variations involving an enterprise that are not taken into consideration, conversely, when CPI is calculated at the macro level.

The ABS website goes on to say "The appropriateness of applying the CPI to individuals, or sub-groups of the population (eg, in adjusting their income or other money amounts involved in contractual arrangements), will depend among other things on the extent to which their particular expenditure pattern resembles the CPI weighting pattern. The significance of any divergence in the expenditure pattern of that particular individual or group from the average will, of course, depend on the relative dispersion of price movements. If the dispersion happens to be low (ie, all prices are changing at similar rates) the difference in expenditure patterns will be immaterial."

Comparatively, inflation was sustained at greater than 13% in the mid-70's, and wages increases did not match that level..

So, if a pay increase is less than inflation, is this an effective pay cut? One way to call it, but not effectively.

Is it a decrease in purchasing power? More likely.

Interesting discussion.

From a financial management perspective, inflation (measured by CPI), when discussing time value of money or real vs nominal rates, is defined as the "reduction in relative purchasing power".

Eg $100 today will buy me 100 lollipops. $100 next year, will only buy me 98 lollipops (and a dentist appointment).

So in simplistic money management terms, yes, an increase less than inflation is a loss of relative purchasing power.

In reality - it depends on whether your basket of groceries is the same as the CPI basket of groceries.

*Groceries being my generic term to cover items measured by ABS Inflation measures.

 

[dfcatch]

Interesting discussion.

From a financial management perspective, inflation (measured by CPI), when discussing time value of money or real vs nominal rates, is defined as the "reduction in relative purchasing power".

Eg $100 today will buy me 100 lollipops. $100 next year, will only buy me 98 lollipops (and a dentist appointment).

So in simplistic money management terms, yes, an increase less than inflation is a loss of relative purchasing power.

In reality - it depends on whether your basket of groceries is the same as the CPI basket of groceries.

*Groceries being my generic term to cover items measured by ABS Inflation measures.

Of course, that doesn't calculate any loss afforded by increased tax liability either

 

[lovestotravel]

Yes - do you have a point regarding that?

 

[AnonymousCoward]

Discussion is also assuming that the current rate of price increases will continue at the same rate. Inflation may stay at 3.6%, or it may fall (The RBA's target is 2-3% rate, removing one-off and transitory factors). Subject to the global financial state improving over the course of the next three years, I'd expect interest rates to rise to cool inflation provided it stayed stubbornly above 3%

 

[medhead]

Discussion is also assuming that the current rate of price increases will continue at the same rate. Inflation may stay at 3.6%, or it may fall (The RBA's target is 2-3% rate, removing one-off and transitory factors). Subject to the global financial state improving over the course of the next three years, I'd expect interest rates to rise to cool inflation provided it stayed stubbornly above 3%

That 3.6% was June quarter number IIRC. The most recent CPI number is lower and the chance of interest dropping has increased, apparently.

 

[rechoboam]

It's not just CPI that matters. Wealth increases faster than inflation- that's the basis of economic growth.

 

[AnonymousCoward]

It's not just CPI that matters. Wealth increases faster than inflation- that's the basis of economic growth.

eh? Savings (which is where you get your wealth from) is just deferred consumption - income that you didn't spend today. Wealth better increase faster than inflation - otherwise what's the point of saving in the first place? The return for doing anything (whether that be going to work, deferring consumption etc.) needs to exceed the costs of doing so (which include the opportunity cost of other forgone possibilities)

 

[rechoboam]

eh? Savings (which is where you get your wealth from) is just deferred consumption - income that you didn't spend today. Wealth better increase faster than inflation - otherwise what's the point of saving in the first place? The return for doing anything (whether that be going to work, deferring consumption etc.) needs to exceed the costs of doing so (which include the opportunity cost of other forgone possibilities)

Sorry. I meant to say average weekly earnings over the last 30 years have increased quicker than prices. Not sure what the index is called now- AWE or Wage/price index?

 

[elbarto]

Those affected by the agreement have now voted in favor of it.

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