Wage data supports RBA over those eager for hikes


Long wait: A man passes the entrance to the Reserve Bank of Australia building in Sydney. It argues that it will take about two more years of ultra-low rates to tighten the job market enough to drive decent pay gains. ― Bloomberg

SYDNEY: Wages data backed Reserve Bank of Australia (RBA) governor Philip Lowe’s dovish price views as markets continue to bet he will be forced to raise interest rates in as little as six months.

Lowe said wages need to rise 3% or more to return inflation to target as annual pay gains matched estimates at just 2.2% last quarter.

The RBA argued it will take about two more years of ultra-low rates to tighten the job market enough to drive decent pay gains. That contrasts with market pricing for the possibility of a first hike from the current 0.1% as early as May.

Traders see the benchmark rising three times in 2022 as Australia’s high vaccination rate positions it to ride an economic rebound, with the nation under the same inflation pressures as economies from Washington to Wellington.

Yet economists including Catherine Birch at Australia & New Zealand Banking Group Ltd (ANZ) noted a key difference with places like the US is the lack of churn in jobs – where workers jump between employers in pursuit of higher pay.

“It’s too early to see wage prints in Australia as strong as those in New Zealand, let alone the US,” Birch, a senior economist at ANZ, said before the release. “And we haven’t yet seen the ‘Great Resignation’ here to put upward pressure on wages.”

There are also some specifically Australian factors that weigh on wage growth.

Many salaries are set based on long-term contracts that have a ceiling of 2.5% or lower; and public-sector workers, which constitute roughly 16% of total employment and have often sent a price signal to the wider economy, facing caps on gains or outright pay freezes.

Australia’s unemployment rate surged to 5.2% in October as a protracted lockdown on the east coast took its toll. But with restrictions lifting and forward indicators showing activity reviving, the job market is expected to recover swiftly.

Lowe reckoned the jobless rate needs to fall to 4% or lower, and stay there for some time before employers will be prepared to pay more to attract staff.

The governor cited the pre-pandemic experience of New South Wales, where the state jobless rate fell to around 4% and wages didn’t do much. More recently, Western Australia shut its domestic border during Covid and saw labour shortages as unemployment hit 3.9%. Yet again, pay gains remained weak.

Still, consumer inflation expectations were 4.6% in November, up from 3.3% in August, and monetary and fiscal authorities are still pumping stimulus into Australia’s A$2 trillion (US$1.5 trillion or RM6.26 trillion) economy. ― Bloomberg

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

RBA , Reserve Bank of Australia , interest rate , hike , wage , data ,

   

Next In Business News

GIIB's glove manufacturing plant expected to enhance bottomline
Kasa’s business programmes at Expo 2020 Dubai generates RM16.33bil in potential trade, investment
FTX's billionaire chief says bitcoin has no future as a payments network- FT
China April aluminium output hits record high as power curbs lifted
China April property sales plunge 46.6%, fastest since at least 2010
China's economy cools sharply in April as lockdowns bite
Oil prices drop on profit-taking, supply fears linger
Asia stocks try to bounce, China data a risk
Dollar starts week on strong footing on firm safe-haven bid
Funds stage sizable soy, soymeal selloff ahead of USDA data

Others Also Read