Wages Outcome A Positive For Inflation

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By Chris Shaw

Those concerned about the level of inflation in the Australian economy have received some good news from the outcome of the September quarter Federal enterprise bargaining wage agreements, which rose less than expected.

Westpac Bank notes for the quarter the outcome for new agreements was an increase of 3.7%, split between a 4.4% rise in the public sector and a 3.2% increase in the private sector. This represents a sizable fall from the previous quarter’s outcome of a 4.3% increase, with a similar trend being exhibited in terms of all agreements, where an increase of 4% was the lowest outcome since the second quarter of 2005.

In the bank’s view this data implies there is yet to be any acceleration in wage pressures in Australia and there may even be signs of a deceleration, this despite a historically tight labour market. This in turn is a positive outcome in terms of the inflation outlook, which suggests there may be less pressure on the Reserve Bank of Australia (RBA) to lift interest rates further.

In detail, the bank notes both private and public sector new agreements were lower than for the previous quarter, the largest falls in the private sector coming in the metals manufacturing, construction, retail trade, property and business services and health and community service sectors.

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