Published: Wed, May 16, 2018
Business | By Tara Barton

RBA warns unemployment will have to fall further before wages can rise

RBA warns unemployment will have to fall further before wages can rise

Annual wage growth climbed 2.1 per cent, in-line with forecasts, but only just above the all-time trough of 1.9 per cent and barely ahead of consumer price inflation.

Construction also continued its sluggish wage performance despite a building boom across the country, with worker's pay rising by just 1.8 per cent.

Normally, I wouldn't quibble about decimal points but RBA deputy governor Guy Debelle's recent statement at the CFO Forum held in Sydney yesterday, quipped that "Recent data on wages provides some assurance that wages growth has troughed".

The good news is that, my back of the envelope calculations show that the wage price index has to grow by 0.18% in the June quarter (1.68% year-on-year) to match the Budget 2018/19 forecast of 2.25% growth.

They are seen as crucial to delivering the tax revenues needed to return the budget to surplus.

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Latest numbers from the ABS reveals Australian wages jumped 0.5% [seasonally adjusted] in Q1, notching a 2.1% year-on-year increase. The RBA remained optimistic on the labour market, said wages expected to pick up gradually as leading indicators pointed to more job gains.

Lacklustre wages growth would continue to dampen household spending that's already saddled with record high levels of debt.

Australian government bonds slumped across the board on Tuesday after the Reserve Bank of Australia (RBA) in its May meeting minutes said that the next move from the central bank will be a hike, instead of an interest rate cut.

"Our view is that the unemployment rate would need to fall to 4 per cent to signal that the labour market is in equilibrium, [which] means a strong cyclical rise in wage growth is not on the horizon".

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