No wage growth likely, says RBA

THE Reserve Bank has abandoned its expectation that wage growth will pick up any time soon and says it will not hit its inflation target until 2022 at the earliest.

The more downbeat official forecasts from the nation’s central bank were contained in its quarterly Statement on Monetary Policy, released yesterday.

While the downgrades were minor, they added to a string of downbeat changes to the RBA’s outlook over the past year.

They also come as many economists predict it will be forced to cut the cash rate to a new historic low by early next year.

The RBA had previously predicted wage growth would slightly rise over the next few years.

It now expects growth in its favoured measure of pay, the wage price index, to stay at 2.3 per cent on an annual basis through to December 2021.

The more downbeat view on wages fed into a less optimistic outlook on consumer price growth.

In August, the RBA expected annual inflation to reach 2 per cent by June 2021.

It now expects prices will have risen by 1.9 per cent by that date and for inflation to remain unchanged until the end of that year. If the forecast pans out, inflation will have been below the RBA’s 2 per cent to 3 per cent target band for six years.

Inflation is running at 1.7 per cent.

The unemployment rate is expected to remain at 5.2 per cent for the rest of this year and the next, before declining to 4.9 per cent in 2021.

This is well above the 4.5 per cent jobless rate the RBA has said is needed to push wages higher.

The RBA now expects “moderate” economic growth over the second half of this year to lift overall growth in 2019 to 2.3 per cent.

That is lower than the 2.4 per cent growth it expected in August.

The economy grew by 1.4 per cent over the year to June.

The RBA has also maintained its forecast for a solid rebound in economic growth to 2.8 per cent in 2020 and 3.1 per cent in 2021.

Ernst & Young chief economist Joanne Masters said the central bank’s forecasts were “optimistic”.

“The downward revision to inflation does indicate they see at least one more rate cut next year,” she said.