Wages growth continues to disappoint

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

 

Shadow treasurer Chris Bowen has called the latest wage growth figures disappointing, saying they would make it difficult for assumptions in the federal budget to be met.

The wage price index – the Reserve Bank and Treasury’s preferred measure of wages growth – rose just 0.5 per cent in the March quarter, proving even more subdued than the modest 0.6 per cent increase predicted by economists.

It left the annual rate at 2.1 per cent, data from the Australian Bureau of Statistics showed, just ahead of inflation and close to the lowest in at least two decades.

Mr Bowen told the National Press Club in Canberra on Wednesday the result was disappointing for the country.

“It’s very, very difficult now for those budget projections released just last week to be met,” he said in answer to a question following his budget reply speech.

Despite the extended run of poor pay increases, Treasurer Scott Morrison has stuck to his forecast for wage growth to accelerate to 3.25 per cent by 2019/20 and 3.5 per cent thereafter, claiming such predictions are conservative.

But Commonwealth Bank economist Belinda Allen believes there is limited evidence to date to suggest that wage growth is getting close to this.

“Today’s numbers suggest that any thought of a return to more normal wages growth is still some time away,” she said.

“Despite strong employment growth over the past year, there has yet to be any flow through to higher wages.”

BIS Oxford Economics head of macroeconomics for Australia, Sarah Hunter, said the figures suggest it will be some time before inflation builds up to force an interest rate rise by the Reserve Bank.

“The RBA has repeatedly signalled that they need to see wage and price inflation well-established before they raise rates,” she told AAP.

She expects the first rate hike will be in late 2019, although the risk following the wage data could see this moved back to 2020.

While they may be questions over some of its forecasts, the budget overall, and its personal income tax cuts were better received than in previous years.

The monthly Westpac-Melbourne Institute consumer sentiment found 10 per cent of respondents saying they would be better off because of the budget, while 58 per cent expected no change and 19 per cent said they would be worse off.

“While the overall balance is negative, it is less negative than last year and the ‘best’ response we have seen since we began running this question in 2010,” Westpac chief economist Bill Evans said.

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