Australian wages growth continues to slow: ANZ's Felicity Emmett
GUEST OBSERVER
Wages growth remains weak. The wage price index rose just 2.1 percent y/y in the first quarter of 2016, the lowest rate on record in this series.
The weakness likely reflects both domestic and global factors. Unemployment remains elevated in Australia, but even in those economies at, or close to, full employment wage growth has remained low. We expect wages growth to remain soft over the next year or so, which will keep inflation low, while also remaining as a headwind to household spending.
Growth in the wage price index (WPI) slowed further in Q1. Wages rose just 0.4 percent q/q and 2.1 percent y/y – on both measures growth is the slowest on record.
Wage growth in the private sector at +0.4 percent q/q / +1.9 percent y/y remains softer than in the public sector at +0.5 percent q/q / +2.5 percent y/y, while wage growth continues to slow across industries and states. Not surprisingly, private-sector wages growth is slowest in WA and Queensland at 1.6% y/y and 1.7 percent y/y respectively.
We expect wages growth will remain subdued for some time. While elevated unemployment and a further adjustment in Australia’s relative labour cost structure will continue to be important drivers, weak wages growth is an increasing global phenomenon.
In its recent inflation forecast downgrade, the RBA clearly reassessed its view on the wages outlook. Yesterday’s minutes noted that “the forecasts embodied the expectation that growth in the wage price index would stabilise around current quarterly growth rates before gradually picking up later in the forecast period”. On that front, these numbers look to be marginally weaker than the Bank’s expectations.
Weak wage growth will keep inflation low. Today’s numbers suggest that growth is yet to stabilise on this measure. This suggests that the risks to the inflation outlook remain tilted to the downside, and household income growth will continue to be a constraint on consumer spending.
Felicity Emmett co-head of Australian economics, ANZ Research and can be contacted here.