Australia, as with most, if not all, of the developed economies, is in a low inflation environment. Wage inflation is playing its part well. So well in fact, wages in the private sector have failed to keep up with consumer inflation over the past year.
According to the latest March quarter figures published by the Australian Bureau of Statistics (ABS), hourly wages grew by 0.5% in the March quarter, up from the revised December figure of 0.4% and in line with market expectations. Year-on-year growth was steady at 1.9% (after revisions) and still at a record low. The annual growth rate is now less than the annual consumer inflation figures for the March quarter.
Public sector hourly wages growth continued the trend of the last two decades and grew faster than the private sector; wages grew by 2.4% in the year to March, up from 2.3% in the December quarter. Private sector wages grew by 1.8% over the las t 12 months which is the same rate as in the December quarter. However, the consumer price index (CPI) grew by 2.1% over the same period.
Westpac’s senior economist Justin Smirk does not see much to which employees can look forward to. “We have found that the sectors that are growing the fastest are also the sectors where labour supply has been most responsive via rising female participation. In addition low inflation expectation and on-going job insecurity has shifted a loft of bargaining power to the employer. As such we expect that wages will continue to underperform for at least the remainder of this year.”
Deutsche Bank economist Phil Odonaghoe expects the RBA to take this into account with its monetary policy. “[T]the absence of genuine price and wage pressures suggests higher official interest rates are unlikely before mid-2019 in our view.” ANZ economist Giulia Specchia largely agrees. “For the RBA, today’s numbers are broadly in line with its view that wage growth has stabilised. However, wage growth (and in turn underlying inflation) is expected to remain subdued for some time, so the data are likely to have few implications for near-term monetary policy.”