AUSTRALIAN wages advanced at less than half the pace of inflation in the 3 months through June, backing the Reserve Bank’s (RBA) move to give itself more flexibility on interest rates.

The wage price index climbed an annual 2.6 per cent last quarter, less than economists’ expectations of 2.7 per cent and coming in well below headline inflation of 6.1 per cent, government data showed on Wednesday (Aug 17). The currency fell below 70 US cents after the release and government bond yields also declined.

The slightly weaker result may prompt the RBA to use the wriggle room it gave itself this month to return to quarter-point rate hikes in September after 3 consecutive half-point moves. Governor Philip Lowe has been flagging stronger wage growth is in the pipeline and is likely to provide additional support to inflation pressures in the period ahead.

Australia’s labour market is very tight, with unemployment at a 48-year low of 3.5 per cent and vacancies elevated. Economists predict data Thursday will show the jobless rate remained unchanged in July as the economy added 25,000 roles.

In minutes of its August policy meeting released Tuesday, the RBA said liaison showed over 60 per cent of firms expect to raise wages by more than 3 per cent over the year ahead.

“Recent high inflation outcomes were a factor in current wage negotiations, but to date most firms expected to raise wages by less than inflation,” it said. BLOOMBERG

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