Australian wages pick up in Q4, still not fast enough

[SYDNEY] Australian wages picked up last quarter as a rapidly tightening labour market drove intense competition for workers, but annual growth was still short of levels that policy makers say would justify a rise in interest rates.

Figures from the Australian Bureau of Statistics out on Wednesday showed its wage price index (WPI) rose 0.7 per cent in the December quarter, matching forecasts and the largest increase since late 2013.

The annual rate picked up to 2.3 per cent, but missed forecasts of 2.4 per cent which caused a dip in the local dollar. The private sector saw growth of 2.4 per cent, while the public payroll lagged at 2.1 per cent.

Wage growth was still only back to where it was in mid-2019 and short of the 3 per cent-plus levels the Reserve Bank of Australia (RBA) argues is needed to keep inflation at target.

It is also below consumer price inflation of 3.5 per cent, meaning real pay is going backwards.

Of the 18 industries the ABS covers on wages the only one to clear 3 per cent last quarter was accommodation and food, reflecting the lack of migrant labour with the borders closed.

National pay claims have not topped 3 per cent since early 2013 and there is a lot of structural inertia in the pay award system, a major reason the RBA believes it can keep policy super-loose until later in the year.

Financial markets are not so sure and have long been pricing in a hike in the 0.1 per cent cash rate by June, with rates reaching 1.25 per cent by year end.

The labour market is clearly tightening with unemployment having fallen sharply to a 13-year low of 4.2 per cent and expected to drop further given vacancies are at record highs.

Cost pressures from supply bottlenecks and high global commodity prices are also percolating through the economy.

Australia's second largest grocery chain Coles Group on Tuesday warned inflation had broadened last quarter and would last through the first half of the year.

The RBA itself recently signalled a switch away from focussing just on wages to a range of measures to gauge price pressures, including unit labour costs, job switching, bonuses and industry liaison.

"Anecdotally, wage growth is "everywhere but in the data","noted Catherine Birch, a senior economist at ANZ. "But given the shift in the balance of power towards employees, and the overseas experience, we think the wage growth will hit 3 per cent by the second quarter and 3.5 per cent by year end."

"This is consistent with our expectation that the RBA will start hiking the cash rate in Q3." REUTERS