Australian wages have been growing at a little over 3% per annum since the late 1990s. A substantial portion of wage increases have been eaten up by inflation but the remainder can be thought of as a reward for productivity gains. However, after wage growth fell during the GFC, the recovery prompted by the resources investment boom proved to be temporary. Wage growth began to slowly but steadily fall and continued to do so until late 2016.
According to the latest wage price index (WPI) figures published by the ABS, hourly wages grew by 0.5% in the December quarter, down from September’s +0.6% and just under the expected 0.6% increase. The year-on-year growth rate increased from September’s revised annual rate of 2.1% to 2.3%, which makes this quarter the third consecutive quarter in which the annual rate has exceeded 2.0%.
Despite the higher growth rate, ANZ economist Jack Chambers was not impressed. “The softer number suggests that the pass-through from the earlier minimum wage rise wasn’t as large as expected.”
The effect of the report on local financial markets was unremarkable. Bond yields finished the day lower, in line with US markets. By the end of the day, 3-year ACGB yields were 3bps lower at 1.65%, 10-year yields had lost 4bps to 2.10% and 20-year yields had dropped by 5bps to 2.47%.
Over in the foreign exchange market, the Aussie dollar initially weakened by around 0.10 US cents after the release but then recovered to finish the afternoon unchanged at around 71.50 US cents.