CANBERRA, AAP – Reserve Bank of Australia governor Philip Lowe believes wages will need to be growing at more than three per cent annually to sustain inflation around the middle of the central bank’s target band, a key to lifting interest rates.

However, he told an economists’ lunch on Tuesday that this doesn’t mean the RBA is targeting wages growth or that wages growth is the only determinant of inflation.

“Rather, we are using wages growth as one of the guideposts in assessing progress towards our goal and whether inflation is sustainably in the target range,” he told an Australian Business Economists webinar.

The RBA wants to see inflation sustainably within the two to three per cent target band before it considers lifting the cash rate from its record low of 0.1 per cent.

“Our central scenario is that underlying inflation reaches the middle of the target by the end of 2023,” Dr Lowe said.

However, he said this by itself would not warrant an increase in the cash rate and much would depend on the trajectory of the economy at the time.

“It is still plausible that the first increase in the cash rate will not be before 2024,” Dr Lowe said.

Wages data on Wednesday will show what progress, if any, is being made towards the three per cent-plus goal on wages.

The Australian Bureau of Statistics will release its wage price index for the September quarter, a key measure for wages growth used by the RBA and Treasury.

As of the June quarter annual wages growth was running at 1.7 per cent and only just above a record low of 1.4 per cent seen during the depths of the coronavirus pandemic.

For the September quarter economists’ forecasts point to a 0.6 per cent rise in the quarter for an annual rate of 2.2 per cent, which would be the fastest pace in two years and back to pre-pandemic levels.

However, forecasts for the quarter range from a rise of 0.4 per cent to 0.8 per cent.

BetaShares chief economist David Bassanese said as the economy recovers from COVID-19, a tightening in the labour market seems inevitable.

“Whether this eventually translates into materially higher wage growth remains highly uncertain, especially with state and federal governments dead keen to ramp up immigration at the earliest opportunity,” he said.

“The longer wage growth remains subdued, the longer the RBA will remain sidelined, and the longer the economy will be given the chance to grow at a solid above-trend pace.”