% average earnings per head * wage price index * * - 2 * * * - 2 non - farm. excluding bonuses and commissions. source : abs in terms of price - setting, the experience differs across firms and industries. however, at the aggregate level, the share of profits in national income – excluding the resources sector, where prices are set in global markets – has not changed very much over recent times ( graph 8 ). a reasonable interpretation of this is that, while firms on average have been able to pass on higher costs and maintain profit margins, inflation has not been driven by ever - widening profit margins. graph 8 profit share of income * % % all industries excluding mining * * * * * gross operating surplus of private non - financial corporations as a share of total factor income. excluding mining sector profits and mining sector labour income. sources : abs ; rba looking forward, it is important that wage increases remain broadly consistent with the inflation target and that a widening of profit margins does not become a source of ongoing upward pressure on prices. the board is watching developments carefully in each of these areas that i have discussed. our central view remains that economic growth will be below trend for a while, that unemployment will increase later this year and that inflation will decline gradually over time. it is a narrow path, though, and there are other plausible scenarios. before we take our next interest rate decision in perth in early may, we will conduct a full review of the forecasts and scenarios for the economy and inflation. the importance of returning to low inflation the board ’ s priority remains to return inflation to the 2 to 3 per cent target range in a reasonable time. it is important that we do this, because persistently high inflation is corrosive and damages our economy. it erodes the value of savings, puts pressure on household budgets and hurts people on low incomes the most. high inflation makes it harder for businesses to plan and it distorts investment. and if inflation becomes ingrained in expectations, it requires even higher interest rates and a larger increase in unemployment to get it back down again. it is for these reasons that the board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that. a primary task of any central bank is to preserve the value of money. and the tool we have to do this is interest rates. in principle, different institutional arrangements could be designed and non - monetary tools could be developed to help contain inflation.

3. 0 may smp 4. 0 2. 5 3. 8 * 2. 0 scenario assumes exchange rate and policy path are fixed to august smp assumptions. sources : abs ; rba. policy implications and conclusions let me conclude. as humans, we are all prone to overconfidence, particularly when forecasting the future. in many cases, the answer we ought to give is that we simply do not know. but it can be hard to say that, particularly if your job is to give a view, and particularly where even small changes in judgement can have first - order effects on people ’ s lives. central bankers, and those who comment on us, are no exception to this universal human trait. in my remarks today, i have set out some of the ways in which we can try to lean against overconfidence without falling into the opposite trap of saying nothing at all. by avoiding over - reliance on point estimates and instead framing our assessments in terms of contingent hypotheses. by continually adjusting the weights we place on those hypotheses through a process of learning – from our own forecast errors, from a wide range of analytical models, from qualitative data and intelligence, from other countries, and through what - ifs and scenarios. and by communicating openly and honestly about where we are relatively confident about the outlook ( and where we are not ), where we are seeking to learn, and the balance of risks. many of these tools are already in use at the reserve bank – and we will move further in that direction as we complete the implementation of the rba review recommendations. of course the billion dollar question is how to map essentially uncertain judgements into policy decisions. that is really the subject for another speech – but the short answer is one should seek to choose strategies that are responsive to, and also robust to, your evaluation of the risks to the outlook as much as to the central projection. in some cases, uncertainty may induce you to be less activist – as you wait for more data, or try to avoid triggering tail risks through your own actions. in others, it can induce you to be more activist : for example, the asymmetry of potential outcomes underpinned the policy response in many countries during the covid - 19 pandemic. but beware anyone who claims it is obvious what to do – for they are false prophets! r e s e r v e b a n k o f au s t r