You are here

Australia's wage drought suggest more stimulus needed to flare economic growth

rk_AUskyline_131119.jpg
Australian wage growth slowed last quarter from a year ago in a disappointing outcome for household consumption, suggesting more policy stimulus is needed to jolt the country's sputtering economy.

[SYDNEY] Australian wage growth slowed last quarter from a year ago in a disappointing outcome for household consumption, suggesting more policy stimulus is needed to jolt the country's sputtering economy.

The wage price index rose 0.5 per cent in the three months that ended September, in line with expectations but down from an already benign 0.6 per cent in the June quarter, Australian Bureau of Statistics (ABS) data showed on Wednesday.

Annual wage growth, at 2.2 per cent, slowed from 2.3 per cent last quarter, when economists had expected it to hold steady.

The slow wage growth has weighed on consumption and has become a "key uncertainty" for domestic outlook, forcing the Reserve Bank of Australia (RBA) to slash its benchmark rate three times this year to a record low of 0.75 per cent.

sentifi.com

Market voices on:

RBA Governor Philip Lowe has repeatedly said wage growth of "3 point something" was needed to spark any inflation pressure.

Still, Wednesday's figures will be no surprise to the RBA, which only last week said that wage growth was "no longer expected to pick up" as it forecast a subdued 2.3 per cent pace through the end of 2021.

The data may, however, embarrass Australia's conservative government, which had forecast wage growth of 2.75 per cent for the financial year ending June 2020 and 3.25 per cent the following year.

The RBA has shown willingness to reduce rates further if needed. Senior officials have also publicly discussed the possibility of unconventional monetary policies in Australia such as quantitative easing or bond purchases.

Financial markets imply the cash rate at 0.5 per cent by early next year, when many economists expect policymakers to launch QE.

Wednesday's dour data sent the Australian dollar a tad lower to US$0.6834, not far from a two-week trough of but still above Tuesday's three-month trough of US$0.6831. 

REUTERS