RBA rates call puts doubt on wage rises


The Re­serve Bank has cast doubt on prospects for a pick-up in wages, sug­gest­ing glob­al­i­sa­tion and tech­no­log­i­cal change are un­der­min­ing the link between fall­ing un­em­ploy­ment and wage growth.

In its quar­terly eco­nomic state­ment, re­leased yes­ter­day, the bank in­di­cated it had lit­tle in­cli­na­tion to lift of­fi­cial in­ter­est rates so long as wage growth and in­fla­tion re­mained low.

“Rates will stay on hold un­til both wages growth and core in­fla­tion are on a sus­tained up­ward trend. And that still looks to be some way off,” said Com­mon­wealth Bank econ­o­mist Gareth Aird. “The gov­er­nor all but con­firmed that rate hikes are not hap­pen­ing in the near term in his op­ti­mistic yet dovish speech ear­lier this week.”

Ac­cord­ing to prices in fi­nan­cial mar­kets yes­ter­day, there was a 32 per cent chance of one in­crease in in­ter­est rates by Oc­to­ber this year, down from about 60 per cent a month ago.

The cen­tral bank ac­knowl­edged the se­ries of sharp falls in global eq­uity and bond prices over the past week, but kept its twin fore­casts for in­fla­tion and eco­nomic growth un­changed from the last for­mal up­date in Novem­ber. It ex­pects eco­nomic growth to rise to 3.25 per cent next year, while in­fla­tion rises slowly to 2.5 per cent, back to the mid­dle of the tar­get range.

“The ex­pe­ri­ence of low wage growth in those coun­tries with tighter labour mar­kets sug­gests that struc­tural fac­tors, such as tech­no­log­i­cal change and glob­al­i­sa­tion, have also had an im­por­tant bear­ing on wage out­comes and could con­tinue to do so for some time yet,” the state­ment on mone­tary pol­icy said. “There is con­sid­er­able un­cer­tainty about whether the fu­ture de­mand for labour will be met by peo­ple en­ter­ing the labour mar­ket, by peo­ple cur­rently un­em­ployed or by em­ployed peo­ple work­ing more hours.”

De­spite record jobs growth last year of more than 400,000, mainly full-time, po­si­tions, the lat­est mea­sures sug­gest wages are ris­ing at an an­nual rate of less than 2 per cent, lit­tle dif­fer­ent from the of­fi­cial in­fla­tion rate, which was 1.9 per cent by the end of last year.

“There was plenty of down­beat com­men­tary on wages,” JPMor­gan chief econ­o­mist Sally Auld said.

TD Se­cu­ri­ties chief strate­gist An­nette Beacher ob­served: “The labour mar­ket and wages growth got a lot of air­time — ‘wage’ was men­tioned 76 times in the doc­u­ment.”

“There have been broad­based de­clines in wage growth out­comes for the ma­jor­ity of work­ers who have re­mained with the same em­ployer in re­cent years,” the state­ment said.

Ear­lier this week, RBA gov­er­nor Philip Lowe said more volatil­ity in eq­uity mar­kets could not be ruled out. “Many in­vestors had been work­ing un­der the as­sump­tions that un­usu­ally low in­fla­tion and un­usu­ally low volatil­ity in as­set prices would per­sist, even with above-trend growth at a time of low un­em­ploy­ment,” Dr Lowe said.

Scott Mor­ri­son yes­ter­day said the gov­er­nor’s speech had been “very mea­sured”.

“I think his com­ments should have sig­nif­i­cantly re­as­sured Aus­tralian in­vestors,” he said.

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