Slow wage growth won’t stop rate rises

Australian wages are growing at their fastest pace since 2018, but are still lagging well behind the rate of inflation.

The Australian Bureau of Statistics said its wage price index rose 0.7 per cent in the March quarter, which was smaller than economists had been expecting.

The data – used by the Reserve Bank of Australia and Treasury to assess wages growth – showed the annual rate was 2.4 per cent, up from 2.3 per cent previously, but less than half the rate of inflation at 5.1 per cent.


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However, economists doubt the result will prevent the RBA from lifting the cash rate again when its board meets in June.

ABS head of prices statistics Michelle Marquardt said the annual rate of wage growth had risen for each of the last five quarters from a low point of 1.4 per cent in the December quarter of 2020.

But the report showed a stark difference in wages growth outcomes for different industries.

Wages for people in renting, hiring and real estate services grew by 3.1 per cent over the year – the highest annual rate of growth for the industry since the June quarter 2013.

However, those in electricity, gas, water and waste services recorded the lowest annual rate of wage growth at just 1.5 per cent for the third consecutive quarter.

“While these data will give the RBA some pause for concern, they will still expect faster wage growth to occur later in the year, and will raise rates at the June meeting,” BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said.

Economists expect the RBA will increase the cash rate by a further 25 basis point in June, matching the first increase in a decade earlier this month as the central bank tries to bring inflation under control.

Cost of living pressures have dominated the six-week federal election campaign which draws to a close on Saturday.

Prime Minister Scott Morrison concedes inflation is a challenge, but is optimistic wages are going up because unemployment is coming down.

“Unemployment has fallen to four per cent in this country,” he reminded reporters in Melbourne and prior to the ABS data release.

April labour force figures are released on Thursday and economists expect them to show unemployment has fallen even further to 3.9 per cent, its lowest level since 1974.

Still, ballooning inflation and an expected rapid rise in interest rates is likely to take the edge off economic activity this year.

The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, fell to 0.88 per cent in April from 1.69 per cent.

However, at an index above zero, it still indicates the economy will grow above its long term trend rate of around 2.8 per cent.

Westpac chief economist Bill Evans said his bank had recently revised down its growth forecast for 2022 from 5.5 per cent to 4.5 per cent.

“That reflected the sharp increase in the cost of living as headline inflation lifted by 5.1 per cent in the year to March … and an earlier and more rapid policy tightening from the RBA,” Mr Evans said.

“That said, near term prospects are still positive.”

© AAP 2022