graph 9 wage price index growth * % % year - ended quarterly * total hourly rates of pay excluding bonuses and commissions source : abs this experience speaks to a broader dynamic in the economy that has been evident for some time and is contributing to the subdued wage and price outcomes. most businesses feel they are operating in a very competitive marketplace and that they have little ability to raise prices. as a result, there is understandably a laser - like focus on costs : if profits can't be increased by expanding or by raising prices, then it has to be achieved by lowering costs. this has become the predominant mindset of many businesses. this mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions. this mindset became entrenched during the resources boom when the exchange rate appreciated very significantly. when one australian dollar was worth more than one us dollar, many australian businesses felt that their australian dollar cost structure was simply too high. you might recall that through this period many businesses were saying that australian costs, including labour costs, were leaving them uncompetitive. this experience has left a lasting imprint on many businesses and it has reinforced the narrative about the importance of cost control. against this background, the economy is now recovering from the pandemic and some firms are finding themselves facing labour shortages. at least some of these business face a choice : do they increase wages in an effort to attract new employees and put up their prices or do they pursue another strategy? many firms are choosing this second option, relying on non - wage strategies to retain and attract staff. some are also adopting a ‘ wait and ration ’ approach : wait until labour market conditions ease, perhaps when the borders reopen, and until then, ration output. for some, this is a better option than paying higher wages and driving up their own cost base. this is especially so if : increases in the cost base are difficult to reverse later on ; there is a reluctance to increase prices ; and the business expects labour market conditions to ease before too long. by waiting and rationing, firms can avoid entrenching a higher cost structure in response to a problem that might be only temporary. the underlying point here is that there are a range of factors that are contributing to limited upward pressure on wages, even in tight labour markets. i have previously talked about the effects of globalisation, technology and industrial relations arrangements. while there is always a

data cannot be dismissed and are, on their face, concerning. other indicators have mostly suggested a slight improvement in the labour market this year, not an accelerating deterioration. the bank ’ s reading, which we have had for a while, is that the labour market has a degree of spare capacity, and that it will be a while before we see unemployment decline consistently. looking ahead, ideally, the non - mining part of the economy would see a further pick - up to grow a bit above trend for a while, having been below trend for a while up to recently. we may not be quite there yet, but we are i think slowly building a foundation for better performance. what can we do to help this? the main thing the reserve bank can do is run an accommodative monetary policy so as to lend support to demand in the non - mining areas of the economy. rates of interest are at very low levels, and have been steady there for over a year now. most observers expect they will be there for some time yet. the rate we actually set, the overnight rate, is as low as it has been on a consistent basis in my lifetime. rates of interest that matter more for most borrowers are similarly very low, and in fact have been declining slightly even though the reserve bank board has not changed the cash rate for bis central bankers ’ speeches over a year now. they are lower than in recent previous cycles, even though the economy today is nothing like as weak as it has been on most of those occasions. monetary policy doesn ’ t just work on the borrowers ; the savers or investors matter too ( and in fact there are more of them ). the low returns on offer on safe investments in australia, and the ultra - low returns on such assets internationally, are certainly having an effect by prompting investors to “ search for yield ”. not only are returns on financial instruments low, but yields on the existing stock of physical assets – houses, commercial property, infrastructure assets – are being bid down. some of that search is of course coming from offshore. that ’ s a big part of how accommodative monetary policy works : by prompting substitution towards higher - risk assets ; raising asset prices, which increases collateral values and makes credit extension more viable ; improving the cash flows of debtors ; and so on. all those things are quite normal parts of the so - called “ monetary transmission mechanism ”. in some ways that term is a misnomer