Australian wages jump by most in a decade as inflation lingers
AUSTRALIA’S central bank chief Philip Lowe finally achieved the faster wage growth he’s spent much of his six years at the helm seeking in an economy weathering its hottest inflation in three decades.
The Wage Price Index advanced by 1 per cent in the third quarter from 0.7 per cent three months earlier, the fastest gain since early 2012, Australian Bureau of Statistics (ABS) data showed on Wednesday (Nov 16). From a year earlier, wages climbed 3.1 per cent from 2.6 per cent in the second quarter. Both readings slightly outpaced estimates.
“This growth was primarily driven by increases in wages for the private sector which grew at twice the rate of wages in the public sector,” Michelle Marquardt, Program Manager of Prices at the ABS, said in a statement.
In the current environment of rapid price gains, that level of wage growth is still relatively contained compared with other economies from Washington to Wellington. The Reserve Bank (RBA) has also said wage increases remain consistent with a return of inflation to its 2-3 per cent target from a forecast peak of 8 per cent this year.
Still, that situation is at risk of changing as workers trying to cope with the rising cost of living demand compensation via sharp pay increases, giving a further leg up to inflation.
Despite its central case that wages growth will remain moderate, the RBA reiterated the need to avoid “a price-wage spiral” in minutes of its Nov 1 policy meeting released Tuesday. The bank said it will pay close attention to the evolution of price-setting at firms and labour costs.
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“What the RBA doesn’t want to see is wages running north of 3.5-3.75 per cent because then you’ve got to engineer an increase in unemployment to drop the rate of wages growth,” said Gareth Aird at Commonwealth Bank of Australia (CBA). “That’s the place that the US is in at the moment, where wages growth is just too strong.”
Australia’s jobless rate is hovering near a 50-year low, highlighting the tight labour market underpinning wages.
“Labour market pressures in the private sector combined with the largest Fair Work Commission award increase in more than a decade” drove the gains, the ABS’s Marquardt said.
Jobs data out Thursday is forecast to show employment rose by 15,000 in October and unemployment held at 3.5 per cent, outcomes that would point to ongoing firmness in the market and the possibility of wage gains continuing to strengthen.
Still, some economists say employment has peaked with the economy adding only 500 positions in the past three reports.
For its part, the RBA sees the risk to the economy from large rate hikes hitting the housing market and indebted households as greater than the danger of accelerating wages fuelling inflation. The bank is also welcoming bigger pay rises in the short-term after so many years of scant increases.
That’s why Lowe has opted to downshift to quarter percentage-point interest-rate increases and officials have started highlighting potential for a pause. The cash rate was raised to 2.85 per cent this month from a record-low 0.1 per cent in May when the cycle began.
Moves by the new Labor government are another factor the RBA needs to keep an eye on. Prime Minister Anthony Albanese has been taking some heat as real wages fall.
Salaries may also get structural support from government legislation currently before Parliament that would allow the industrial umpire to step in when talks between workers and firms break down, and push for an expansion of multi-employer bargaining.
“The longer the labour market stays incredibly tight and you’ve got really elevated job vacancies then it’s possible wages growth ends up accelerating and you get this circularity where wages expectations have gone up and that keeps inflation elevated,” said Aird, head of Australian economics at CBA. “That’s what we think is a risk to the outlook, but it’s not our base case.” BLOOMBERG
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