Australian wage growth stalls, builds case for rate cut

16 May, 2019 12:00 AM printer

SYDNEY: The pace of growth in Australian wages stagnated last quarter, adding to evidence that exceptional strength in the labour market is not enough to boost pay rewards, consumer spending and inflation.

Wednesday's data from the Australian Bureau of Statistics (ABS) showed the wage price index rose 0.5 per cent in the three months ended March, unchanged from the December quarter, report agencies.

"The fact that wage growth isn't responding at all to the continued tightening of the labour market is worrying," said Marcel Thieliant, Singapore-based economist at Capital Economics.

"The stagnation in wage growth...supports our view that the Reserve Bank of Australia (RBA) will cut interest rates soon."

RBA Governor Philip Lowe has repeatedly said annual wage growth must start with a 3 for inflation pressures to lift. But that prospect seems increasingly distant now. The annual pace of wage growth has been stuck at 2.3 per cent since the quarter-ended September.

Tepid income growth has become a key issue ahead of a national vote on Saturday with the opposition Labor Party pledging to "get wages moving again" and its leader Bill Shorten declaring that the 2019 election is a "referendum on wages".

The miserly pace of wage growth amid other economic uncertainties weighing on consumption is a major reason the central bank is seen certain to cut rates later this year from current record lows of 1.50 per cent. Expectations of policy easing led investors to dump the Australian dollar sending it to a four-and-a-half-month trough of US$0.6924.

In the private sector, utility services and health care and social assistance enjoyed the highest quarterly pay rises of 1.0 per cent and 0.9 per cent, respectively. In most other sectors, including construction, retail, rental and real estate services, the increase was a piddly 0.2 per cent.

Gains in mining wages doubled to 0.6 per cent in the quarter but is still nowhere close to the rate enjoyed during the decade-long mining boom that began in the early 2000s.

Wage weakness is a global phenomenon linked to everything from the rise of China, the fall of union membership, technological change, job casualisation and the increasing concentration of market power in the hands of a few giant corporations.