• Australia’s wage price index rose 0.6% higher over the March quarter nudging yearly growth to 1.5%.
• New Australian Bureau of Statistics (ABS) data, released Wednesday, shows wages continue to crawl upwards.
• But the Reserve Bank of Australia (RBA) is holding out for wage growth of circa 3% before it reconsiders the rock-bottom cash rate.
• Visit Business Insider Australia’s homepage for more stories.

Australia’s wages nudged upwards over the March quarter, according to new Australian Bureau of Statistics (ABS) figures, but the labour market needs further tightening before the Reserve Bank of Australia (RBA) reconsiders its rock-bottom interest rates.

In its latest report, released Wednesday, the ABS revealed the wage price index (WPI) grew 0.6% over the quarter, and 1.5% over the year. That annual figure is half what the RBA wants to see before it lifts the official cash rate from its record-low 0.1%.

Coupled with the latest unemployment figure of 5.6%, which the RBA wants to drive below 4%, there’s still some way to go before the RBA even considers an interest rate hike.

Quarterly wage growth was driven by a 0.6% bump in the private sector and a 0.4% lift in the public sphere.

Much of the private sector gains resulted from the Fair Work Commission’s Annual Wage Review for 2019-2020, which presaged a bump in modern award rates, the ABS states.

Wage negotiations which had been postponed by the COVID-19 pandemic also contributed, with scheduled enterprise agreement tweaks playing a role.

In its May monetary policy update, the RBA acknowledged the continual closure of Australia’s international border — which last week’s federal budget suggested will open no earlier than mid-2022 — may also restrict migration to the point that employers are forced to offer increased pay packets.

“The longer border restrictions remain in place, though, the more likely that localised labour shortages could translate into some wage pressures as the economy continues to strengthen,” the RBA noted.

Even so, the RBA predicts real wage growth will remain sluggish, keeping inflation down for a while yet.

“At the end of the forecast period in mid-2023 wages growth is likely to remain below the rates that would be consistent with inflation being sustainably within the target range,” the RBA wrote.

“Accordingly, monetary policy will need to remain highly accommodative for some time yet.”

The Treasury has also doused any speculation that interest rates will lift any time soon, with Treasury Secretary Steven Kennedy yesterday telling a meeting of the Australian Business Economists unemployment needs to drop further, and wages need to climb higher, before the Federal Government changes its big-spending course.

“While the recovery has been stronger than expected, there is still considerable slack in the labour market and few signs of wages and price pressures,” Kennedy said. “There is also a considerable degree of uncertainty about how the pandemic will continue to play out in Australia and internationally.”

“This means the Government remains well within the first phase of its fiscal strategy.”

With a record number of job listings on employment portal SEEK, there is hope yet for Australia’s unemployment to fall below 5%, driving Australia’s languishing wages upwards.

Just don’t expect it any time soon.

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