Fears wage deals will hurt growth

Low wage growth will persist in Australia for some time, the Reserve Bank of Australia has warned, with the situation worsened by new workplace agreements reducing pay rises.

A day after bank governor Philip Lowe said a lift in wages would be “a welcome development” for the economy, the bank said stagnation in paypackets would be worsened in the near term by new enterprise bargaining agreements struck on lower wage rises than the deals they replaced.

“Other things being equal, this will induce some inertia that will limit overall wage growth for a time,” the bank said in its quarterly Statement on Monetary Policy, released yesterday.

The bank said it would be some time before Australia’s unemployment rate dropped to what it considered full employment and also before the limp inflation rate — currently 1.9 per cent — reached the midpoint of its preferred two to three per cent target band.

Wage growth would be a key determinant of how quickly inflation increased, it said.

On Thursday, Lowe told an economics forum that a boost in wages growth would be welcome as the current weakness was dampening consumer spending and affecting households’ ability to pay down debt, which was uncomfortably high.

Yesterday, the bank also addressed the recent turmoil on global sharemarkets.

The volatility had not derailed optimism over continuing corporate earnings growth, the bank said.

It said that, while global stock prices had fallen as bond prices rose and investors worried about rising inflation, equities remained higher than they were a year ago, “reflecting the strengthening global economy and expectations of ongoing strength in corporate earnings over the next few years”.