Australia | Aug 18 2010
By Chris Shaw
Wage pressures in Australia remain modest, the June quarter Australian Wage Price Index recording a rise of 0.8% compared to market expectations of a gain of 0.9%. The annual pace of wage growth is unchanged at 3.0% on the back of the June quarter data.
As CommSec notes today's update implies that for the first time in two years wages are growing at a slower pace than prices, group chief economist Craig James suggesting this fact is a solid reason as to why Australian consumers are currently not spending.
Breaking down the data, private sector wage growth for the period was 0.8% in quarter-on-quarter terms, while public sector wages grew by 1.0% over the same period. In sector terms wages grew most strongly in the mining sector at 1.4%, while solid gains were also recorded in the construction, manufacturing and professional services sectors. ANZ Bank notes wage growth elsewhere was weak.
According to ANZ senior economist Riki Polygenis, today's data should add a degree of comfort to the Reserve Bank of Australia (RBA) as it is good news on the inflation front and reduces upward pressure on household incomes.
It also implies limited likelihood Australian households will move to abandon their currently cautious spending patterns, in Polygenis's view. This implies another reason for the RBA to keep rates on hold over the next few months.
Taking a longer-term view Westpac suggests today's data continue the trend of private sector wage inflation slowly trending higher. This implies some upside risks as unemployment falls further, as disinflationary influences in the economy appear to be waning.
Westpac's analysis shows Wage Price Index data historically respond to unemployment trend rates with a lag of around two quarters. With trend unemployment falling to 5.2% in July this implies a step-up in quarterly Wage Price Index growth through the second half of this year.
On the plus side, Westpac notes annual growth in the Wage Price Index of 3.0% in year-on-year terms is well below the historical average of 3.6%, so the bank agrees today's data won't be a concern to the RBA at this stage.
CommSec's James agrees today's wages data mean the RBA doesn't need worry about wage growth for at least the next six months. Longer-term he agrees a tightening in the job market should see wages lift, which he suggests would be a positive for consumer spending.
According to ANZ's Polygenis, upward surprises on consumer spending will prove a key potential trigger for future interest rate rises. This is especially the case as the RBA is aware the capital constraints in the Australian economy mean accommodating twin terms of trade/investment and household consumption booms are not possible.
