No rate rise as December quarter wages growth not strong enough: Shane Oliver

No rate rise as December quarter wages growth not strong enough: Shane Oliver
No rate rise as December quarter wages growth not strong enough: Shane Oliver

GUEST OBSERVER 

December quarter wages growth in Australia was a stronger than expected 0.6% quarter on quarter which lifted the annual pace of wages growth to 2.1%, its strongest in 18 months.

This was above market expectations for a 0.5% quarterly gain.

Underlying wages growth may be bottoming, but its premature to conclude that its starting to lift: as the stronger than expected December quarter gain likely reflects a continuing flow through of last year’s minimum wage rise (which appeared to impact less than expected in the September quarter); adjusting for the minimum wage rise leaves underlying wages growth still stuck around its low of just 1.9% year on year; and the acceleration in quarterly wages growth was only driven by the public sector with private wages growth stuck at 0.5% quarter on quarter.

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No rate rise as December quarter wages growth not strong enough: Shane Oliver

 

Meanwhile, wage increases in new enterprise bargaining agreements have been tending to be lower also suggesting there has been no real lift in underlying wages growth and spare capacity in the labour market remains very high.

So our view remains that its premature to conclude that the long awaited lift in wages growth is upon us and so we see no reason for the RBA to change its conclusion that the lift in inflation towards target will be gradual and we continue to expect that the RBA won’t be raising rates until late this year at the earliest. So the Australian dollar was right to give up its initial bounce after the wage data was released.

SHANE OLIVER is head of investment strategy and economics and chief economist at AMP Capital and is responsible for AMP Capital's diversified investment funds.

Tags: 
Shane Oliver Wages Growth

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