Low wage growth to weigh on inflation

Low wage growth to weigh on inflation

Record low wage growth figures for the June quarter look set to keep inflation below the Reserve Bank of Australia's target band for the foreseeable future.

The Australian Bureau of Statistics' seasonally adjusted Wage Price Index rose 0.5 per cent in the June quarter of 2016 and 2.1 per cent over the year.

Annual nominal wage growth is at its lowest level since the inception of the Wage Price Index in 1997.

Private sector wages are up 2 per cent year-on-year, while public sector wages rose 2.4 per cent year-on-year.

AMP Capital chief economist Shane Oliver said the "ultra-low" wage growth is reflective of ongoing spare capacity in the labour market, with unemployment and underemployment combined sitting at 14.2 per cent.

Low corporate revenue growth is also contributing to low company budgets for wage growth, Mr Oliver said.

"Continuing record-low wage growth means ongoing downwards pressure on inflation as it contains cost pressures for businesses," Mr Oliver said.

"As such, it adds to the risk that inflation will stay below the RBA's target range for longer than the RBA is currently projecting," he said.

"The continuing weakness in wage growth and the risks it poses to inflation are consistent with our assessment that the RBA will cut interest rates again this year, but probably not until November when we see the cash rate being cut by another 0.25 per cent, taking it to 1.25 per cent," Mr Oliver said.

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