Flat wages push rate cut

All eyes on jobs data today as RBA primed to act

WAGE growth remains flat, with a 0.5 per cent lift for the March quarter undershooting expectations and adding further weight to the case for a rate cut.

Quarterly growth was identical to the December result, short of consensus predictions of a 0.6 per cent rise.

The release comes on the eve of jobs data that appears central to whether the Reserve Bank will cut the cash rate for the first time since August 2016 in order to jump-start stagnant economic growth.

BIS Oxford chief economist Sarah Hunter said yesterday’s seasonally adjusted data from the Australian Bureau of Statistics added yet more pressure to cut the cash rate.

“Given their focus on the labour market and its recent strong performance, we don’t expect them to cut at their next meeting in June. But it’s looking increasingly likely that cash rate cuts will materialise in the second half of the year,” Ms Hunter said.

She said yesterday’s data confirmed robust jobs growth, but there remained very little upward pressure on wages in the labour market.

“Although the recent drop in inflation means that the average worker is now enjoying relatively robust growth in real wages, the data are disappointing,” Ms Hunter said.

“With employment growth set to slow as the residential construction downturn really starts to bite, momentum in wages is unlikely to pick up until well into the 2020s.”

The 2.3 per cent year-onyear wages growth to March 31 matched expectations but has now remained stagnant for three consecutive quarters. Meanwhile private sector wages rose 0.5 per cent for the quarter, and the public sector index rose 0.4 per cent.

Construction and retail wages continue to lag, while healthcare, utilities, and other public-sector related industries – where employment growth has been strongest – are leading the way.

APAC economist Callam Pickering said the RBA would view yesterday’s data as neutral, though it would already have an eye on today’s Labour Force data for April, which takes on added significance given disappointing March quarter inflation figures.

“(The Reserve Bank is) naturally disappointed that wage growth isn’t improving at a faster clip … but they could hardly be surprised given the terribly disappointing inflation figures for the March quarter,” he said. “Right now their primary focus appears to be employment and the unemployment rate, so all eyes will be on the data (today).”