Stevens argued that real per capita disposable incomes grew at 2% pa between 1995 and 2005, which is an unusually high pace. He points out that for the 20yrs prior to 1995, the rate of income growth was less than half this, which begs the question as to what disposable income growth rates one can reliably forecast going forward.
I had in my mind a number around 4.5% pa. Yet many economists think this is far too low, pointing to 5-6% pa figures that have held since the start of the 1990s. If you take the RBA's 2.5% pa inflation target and add 2% real disposable income growth, you neatly arrive at my 4.5% pa estimate.
Of course, this assumes (a) historically high real income growth and (b) that the RBA hits its inflation target, which it has found difficult over the last 10yrs.
I guess it would not be hard to rationalise a lower, say, 3.5% to 4.5% pa range for nominal disposable incomes on a per capita basis. Perhaps even more thought-provoking are the consequences of this for bank credit growth and bank earnings. If disposable incomes per capita are only rising at say 4% pa, it is hard to see how housing credit can expand much more quickly. And the same principle might be applied to business credit, where nominal income growth might be limited to around 5-6% pa.
This means the heady days of double-digit credit growth are well and truly behind us.
