This slow transition has been one of the central issues that we have discussed around the G20 table over the past year under Australia’s presidency. A key question we have been asking ourselves is what can be done to speed up this transition. One perspective is that it is just a matter of time.
Also, we have no contemporary experience to guide us with how labour costs and prices in Australia will behave at an unemployment rate below 4 per cent. It is also relevant that households have much more debt than previously, and many households have never experienced rising interest rates. So this is another aspect that we will be watching carefully.