Mr CIOBO: In terms of the RBA's tolerance level for wage growth, historically it is a combination of productivity growth plus inflation. With a trimming of productivity growth does that mean that what is effectively NAIRU is higher?
Mr Stevens: I think what it means, if the hypothesis is that productivity growth is permanently lower, is that then the rate of nominal wage growth that everybody has been accustomed to will not be consistent with the inflation target any more unless some other factor is at work providing an offset. That factor could be a rise in currency but it would have to keep rising not just rise once [CJ: I have previously explained that the currency cannot substitute for rate hikes unless it consistently increases]. It is quite an important question. I would not pin this just on labour productivity, multifactor productivity generally has slowed down.
