You are here

Australia wage growth subdued; threatens spending, inflation

2017-05-08T040702Z_494408127_RC1D1BF800D0_RTRMADP_3_AUSTRALIA-ECONOMY-VACANCIES.JPG
Australian wages growth had languished at record lows for an entire year by the end of June quarter, official data showed on Wednesday, an outcome that threatens to sap consumer spending by heavily indebted households and to drag on already-anaemic inflation.

[SYDNEY] Australian wages growth had languished at record lows for an entire year by the end of June quarter, official data showed on Wednesday, an outcome that threatens to sap consumer spending by heavily indebted households and to drag on already-anaemic inflation.

The Australian Bureau of Statistics (ABS) said that its wage price index rose just 0.5 per cent in April-June, matching forecasts and compared with an upwardly revised 0.6 per cent the previous quarter.

Annual wage growth held at 1.9 per cent, the lowest on record. That was less than half the growth rate workers enjoyed a decade ago when a mining boom boosted pay across Australia.

The slowdown has contributed to an unwelcome decline in underlying inflation, which sits below the Reserve Bank of Australia's (RBA) target band of 2-3 per cent.

sentifi.com

Market voices on:

Tepid consumer prices led to two interest rates cuts last year to a record low of 1.50 per cent. "The stagnation in annual wage growth...supports our view that the low-wage, low-inflation climate will mean the RBA won't raise interest rates next year as the markets expect," said Paul Dales, chief economist at Capital Economics. "With households' real wages having been unchanged over the last year, consumption growth will surely slow soon."

The RBA is worried about the impact on the A$1.7 trillion (S$1.82 trillion) economy from surging household debt, which is already at 190 per cent of disposable income.

Policymakers hope wages growth will eventually tick higher given a recent revival in employment and the end of a slump in mining investment.

Yet, there was scant sign of a pick-up in Wednesday's report. Not a single industry from manufacturing to healthcare raised wages more than 2.6 per cent annually.

Miners got the highest pay rise in the quarter but their annual pay hike was still the smallest of all industries at a mere 1.1 per cent.

Wage hikes were more attractive in the public sector at 2.4 per cent, compared with just 1.8 per cent in the private sector.

REUTERS