Australian salaries grew at a much slower pace than inflation in the three months through June, suggesting the economy will avoid a wage-price spiral and the Reserve Bank is likely to stand pat for a period.
(Bloomberg) — Australian salaries grew at a much slower pace than inflation in the three months through June, suggesting the economy will avoid a wage-price spiral and the Reserve Bank is likely to stand pat for a period.
The Wage Price Index rose 3.6% from a year earlier, slightly below economists’ expectations of a 3.7% gain, Australian Bureau of Statistics data showed Tuesday. On a quarterly basis, wages grew 0.8% versus a forecast 0.9% rise.
The data indicate that pay gains are still relatively contained compared with global counterparts and remain detached from inflation that’s currently running at 6%. That also reinforces expectations the RBA will keep borrowing costs unchanged at 4.1% at its Sept. 5 meeting as it closely monitors price pressures.
The Australian dollar and three-year government bond yields both declined after the data and dovish central bank minutes as traders pared bets on further rate hikes.
Read more: RBA Sees ‘Credible Path’ to Inflation Target at 4.1% Cash Rate
Governor Philip Lowe reckons wage growth of 4% is consistent with the RBA’s inflation goal provided the economy’s productivity performance improves. But policymakers are mindful a prolonged period of elevated inflation could trigger larger salary demands and prompt businesses to put up prices, making it much tougher to return CPI to the 2-3% target.
Economists expect a pick-up in wages after the workplace umpire boosted the minimum wage by 8.6% from July 1 for a small cohort of low-income workers. That is likely to feed into inflation in the current period.
Lowe says further rate rises may still be required with the job market still tight. On Thursday, employment data are forecast to show a deceleration in hiring pushed the jobless rate up to 3.6% from 3.5%.
Tuesday’s wages data showed private-sector wage growth was 3.8% in the second quarter from a year earlier, while public sector wages grew a slower 3.1%.
The nation’s center-left Labor government will take heart from the data as it tries to boost wages for everyday Australians following years of stagnation. Treasury forecasts show wage growth will exceed inflation by early 2024, the first time in more than three years that workers will see real pay gains.
“We understand that securing real wages growth means getting inflation under control, which is why addressing the inflation challenge is the central focus of our government,”Treasurer Jim Chalmers said in a statement ahead of the data.
One of the reasons that economists expect Australia will avoid the sort of wage-price spiral that has erupted in some other developed countries is surging immigration that is boosting labor supply and likely reducing the bargaining power of employees.
–With assistance from Tomoko Sato, Ben Westcott and Matthew Burgess.
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