Australian wages grew at their slowest pace on record last quarter, a depressant for consumer spending and a challenge to policymakers’ hopes that inflation had finally bottomed out. The Australian Bureau of Statistics said on Wednesday that its wage price index rose just 0.4 per cent in July-September, the smallest increase since the data series began in 1997.
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Annual wage growth braked to 1.9 per cent, again the lowest on record, and under already meagre forecasts of 2.0 per cent. That was less than half the wage growth rate workers enjoyed a decade ago when a mining boom boosted pay awards across the nation.
It also belies an economy that is growing at over 3 per cent – much faster than its rich-world peers – and a downside threat to inflation that is already running at all-time lows.
The wage growth slowdown was a setback for the Reserve Bank of Australia (RBA), which left interest rates at 1.5 per cent this month in part because it was more confident inflation had turned a corner.
“The fact that we’ve had another weaker number is important information for the RBA,” said JP Morgan Economist Ben Jarman.
“The RBA needs the economy to run red hot from here for a couple of years to drag inflation back up. The narrative about inflation recovering is very vulnerable to any faltering on the activity side.”
The Australian dollar fell 0.2 per cent to $0.7540 after the data, but futures markets <0#YIB:> still imply a mere 16 per cent chance of a rate cut by mid-2017.
Underlying inflation is stuck at an anaemic 1.50 per cent but RBA Governor Philip Lowe said on Tuesday there were “reasonable prospects” that inflation will return to the RBA’s target band of 2-3 per cent.
The RBA’s optimism partly emanates from a leap in the price of iron ore and coal – Australia’s two biggest exports. It argued wages would increase gradually in line with an improvement in the jobs market and the end of the drag on growth from a slump in mining investment.
Yet there was scant sign of a pick-up in Wednesday’s report. Not a single industry from manufacturing to healthcare raised wages more than 2.5 per cent annually. Even mining has lost its Midas touch, with workers getting an annual rise of only 1.0 per cent.
“Businesses are more likely to take advantage of the adequate supply of labour and use the commodity price windfall to raise profits and boost investment rather than wages,” said Paul Dales, Sydney-based chief economist at Capital Economics. “So while the outlook for domestic activity has improved, the era of unusually low underlying inflation isn’t over.”