Australia wages — hard to identify where intensifying wage pressure will come from

Responses to the Australian wages data continue to flow in.I’ve posted earlier:

  • Commsec on Australian wages data: Wage growth lifts from lows
  • AUD lower after the wages data — analyst responses coming in
  • AUD tests under 0.7600 after the miss on Q3 wages data
  • Australia — Q3 Wage Price Index 0.5% q/q (exp 0.7%)

CBA have their response out, a detailed piece and I’ve pulled out a few items:

  • real wages growth is still skirting negative territory, a bad omen for already tepid consumer spending in an environment of record household debt and new consumers trying to pay down debt, despite record low rates
  • The lower than expected … outcome included, and was boosted by, the recent national minimum wage case
  • Significant spare capacity in the lacklustre jobs market, ongoing major structural change (i.e. digital/technological revolution), and low inflation expectations point to likely scant upward pressure on wages (and consumer spending) anytime soon

Looking ahead it is hard to identify where intensifying broad wage pressurize and outcomes will come from despite a strengthening national economic growth pulse.Indeed. wages growth is likely to continue to be hamstrung by

  • considerable spare capacity in the labour market,
  • a lower level of job mobility,
  • major structural change in the economy (associated with technological change)
  • and increased competitive pressures from the internationalisation of services trade

Monetary policy implications

  • The upshot of today’s lower than expected and very tame Q3 wages growth outcome is that it bolsters our long held view that the RBA will remain on the sidelines for all of 2017 and until late 2018 at the earliest, before moving to lift the current cash rate
  • The RBA has made crystal clear on numerous recent occasions via the latest Statement on Monetary Policy (SMP), RBA Board meeting minutes and senior official speeches that the central bank is in no hurry to reach for the rate hike lever with inflation and wages growth so feeble.

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