Australian wages jump by most in decade as inflation lingers

SYDNEY– Australia’s central bank chief Philip Lowe finally achieved the faster wage growth he has spent much of his six years at the helm seeking in an economy weathering its

hottest inflation in three decades.

Wages climbed 1 per cent in the three months through September from the previous quarter, the fastest pace since early 2012, for an annual gain of 3.1 per cent, government data showed on Wednesday.

Both readings outpaced estimates and cemented bets for another interest rate rise in December that would bring the Reserve Bank of Australia’s (RBA) tightening to 3 percentage points in eight months.

“While we don’t think this figure will alarm the RBA, it is a large step up,” said Ms Felicity Emmett, a senior economist at Australia and New Zealand Banking Group. “It’s therefore unlikely the RBA will pause in December. So, absent an exceptionally weak October employment report tomorrow, we continue to think they’ll raise the cash rate by 25 basis points.”

In the current environment of rapid price gains, the current level of wage growth is still relatively contained compared with economies from Washington to Wellington. The RBA has also said wage gains remain consistent with a return of inflation to its 2 per cent to 3 per cent target from a forecast peak of 8 per cent this year.

Despite its central case that wages growth will remain moderate, the RBA reiterated the need to avoid “a price wage spiral” in minutes of its Nov 1 policy meeting released on Tuesday.

The bank said it will pay close attention to the evolution of price-setting at companies and labour costs.

In Australia, a return of migration back to pre-pandemic levels could potentially cap wages growth, economists say. 

Australia’s

jobless rate is hovering near a 50-year low,

highlighting the tight labour market underpinning wage growth.

Jobs data out on Thursday is forecast to show employment rose by 15,000 in October and unemployment held at 3.5 per cent, outcomes that would point to ongoing firmness in the market and the possibility of wage gains continuing to strengthen. 

“The quarterly increase today annualizes to around 4 per cent, which is a little above the optimal level for wages growth to settle,” said Mr Gareth Aird, the head of Australia economics at Commonwealth Bank of Australia (CBA). 

“On our forecast profile, unemployment will gradually rise over 2023. As that occurs, it will be tougher for workers to push for bigger increases in salary, particularly as labour supply rises with the return of foreign workers.” 

For its part, the RBA sees the risk to the economy from large rate hikes hitting the housing market and indebted households as greater than the danger of accelerating wages fuelling inflation. The bank is also welcoming bigger pay rises in the short term after so many years of scant increases.

That is why the central bank’s chief has opted to downshift to quarter percentage-point rate increases and officials have started highlighting the potential for a pause. The key rate was raised to 2.85 per cent this month from a record-low 0.1 per cent in May when the cycle began.

Moves by the new Labor government are another factor the RBA needs to keep an eye on.

Prime Minister Anthony Albanese has been taking some heat as real wages fall.

Salaries may also get structural support from government legislation currently before Parliament that would allow the industrial umpire to step in when talks between workers and companies break down, and push for an expansion of multi-employer bargaining.

“Context is very important when analysing today’s wages publication,” said CBA’s Mr Aird.

“In short, it was the ideal time for a worker to get a pay rise.”  BLOOMBERG