CANBERRA, AAP – The Reserve Bank of Australia has long called for higher wages growth to help lift inflation and enable it to hike the cash rate from its emergency level.
New figures will show that is still some way off into the future.
In the minutes of the RBA’s August 3 board meeting released on Tuesday, the central bank reiterated it will not raise the cash rate from its record low of 0.10 per cent until inflation is sustainably between two and three per cent.
For that to happen it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently – conditions it does not expect to be met before 2024.
It forecasts wages growth – as measured by the wage price index – to increase gradually to around 2.75 per cent by the end of 2023.
The wage price index for the June quarter this year is released on Wednesday by the Australian Bureau of Statistics, and will confirm why an interest rate hike is still years away.
Economists’ forecasts centre on a 0.6 per cent rise in the June quarter.
This will lift the annual rate to 1.9 per cent from 1.5 per cent as of the March quarter and the record low 1.4 per cent set during the second half of 2020 caused by the fallout from the recession.
Wages growth has not been above three per cent since early 2013.
In a note to clients, economists at St George Bank said there have been reports in recent months of increased pressures in finding skilled workers in certain sectors.
“These difficulties are flowing through into isolated wage pressures in those industries. However, this has not yet translated to a broad increase in wages,” they said.
If economists are correct in their forecasting, it will show wages are flagging well below the current rate of inflation.
The June quarter consumer price index spiked to annual rate of 3.8 per cent, although such price pressures are expected to be only temporary.
This inflation rise was the result of government support measures during the pandemic being unwound and a rise in fuel prices.
The RBA expects the CPI to slow again to 2.5 per cent by the end of this year and to 1.5 per cent by the middle of 2022.