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Australian wage growth at ‘record low’

Australian wage growth at ‘record low’

Francesca Krakue
— 1 minute read

Sluggish wage growth makes the prospect of another rate cut in late 2017 a distinct possibility, says AMP Capital. 

According to the Australian Bureau of Statistics, Australian wages rose by only 0.5 per cent in the March quarter, leaving annual wages growth at a record low of 1.9 per cent.

Private sector wages growth is tracking even lower at 1.8 per cent year-on-year.

AMP Capital senior economist Shane Oliver said that continued high levels of unemployment and particularly underemployment (which together total over 14 per cent of the workforce) are keeping wages growth at record low levels.

“Workers simply have no bargaining power,” Mr Oliver elaborated in an analysis piece.

“With the cost of living as measured by the CPI now rising faster than wages, real wages are falling and this will act as a drag on consumer spending,” he said.

“Weak wages growth also implies ongoing downwards pressure on underlying inflation which risks staying below the RBA’s 2 to 3 per cent inflation target for longer than it’s currently assuming.”

“Ongoing record low wages growth also underlines the risk that the government won’t see the doubling in wages growth it assumed in the budget over the next four years and, as a result, government revenue growth will disappoint further delaying the return to a budget surplus.”

Mr Oliver noted that the budget’s positives of more infrastructure and education spending hasn’t boosted consumer confidence, which also fell in May to a below average reading.

“[These were] possibly offset by the impact of an increase in the Medicare levy (albeit it’s two years away and may not happen),” he said.

“Continuing softness in consumer spending at a time of high underemployment, weak wages growth and a declining wealth effect, if Sydney and Melbourne home price gains slow, points to continued softness in retail sales going forward.

“Consumer confidence continues to lag business confidence by a wide margin, but it’s hard to see the latter remaining strong unless consumer confidence picks up, driving stronger consumer spending.”

Mr Oliver concluded that the combination of continuing record low wages growth and soft consumer spending indicate that the risk of another RBA rate cut this year is “far higher” than a hike.

“Our base case is that rates are on hold, but if retail sales and wages growth don’t show signs of picking up soon and home price gains in Sydney and Melbourne slow, then the RBA will cut again by year end.”

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Australian wage growth at ‘record low’
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