Wage growth is restrained and should not put any significant pressure on inflation nor stand in the way of a future rate cut, economists say.
Total hourly rates of pay, excluding bonuses, rose by a slightly higher than expected one per cent in the December quarter, seasonally adjusted, the Australian Bureau of Statistics reported on Wednesday.
That was higher than the 0.8 per cent increase forecast by economists and well above the 0.7 per cent rise in the September quarter.
Over the year to December, hourly rates of pay were up 3.6 per cent but below the 3.9 per cent recorded in the previous 12 months.
St George chief economist Besa Deda said wages growth was slightly higher than expected for the quarter but would not put significant pressure on inflation.
She said the data would not stand in the way of any future rate cut by the central bank as there was no evidence of any wage growth escalation over the longer term.
“It is a little bit higher than expected but still pretty restrained,” she said.
Ms Deda said that the greatest growth for wages continued to be in the resources sector.
She said the Reserve Bank of Australia (RBA) would be comfortable with the overall rate of wages growth.
She said the RBA’s unofficial line in the sand for wages growth was 4.5 per cent, with annual rises above that level seen as uncomfortably high.
“If the RBA was going to cut interest rates in March, I don’t think this would stand in the way.”
Macquarie senior economist Brian Redican said that year-on-year wages growth continued to stay in a range of between 3.5 and four per cent.
“So there is no sign of a rapid escalation of wages pressures and with the softness of employment over the last 12 months you wouldn’t expect to see that,” he said.
“The overall message is that wages growth and inflation aren’t the main concerns of the Reserve Bank at the moment.”
Mr Redican said the wage cost figures would not change the RBA’s interest rate outlook.
CMC Markets chief market strategist Michael McCarthy said the data showed that inflationary pressures were still an issue and could prompt the RBA to raise the cash rate.
“This (data) clearly speaks to the potential for rate cuts receding,” he said.
“If inflationary pressures are building in the wages system, the Reserve Bank will be very cautious about planning further rate cuts.
“If we continue to see numbers that indicate this inflationary pressure, we could well see the market switch its thinking from the likelihood of the next rate move being down to it being up.
“I would have thought this would be positive for the Australian dollar, in pointing to a firmer interest rate environment
“But we’re not really seeing it play out in the market at the moment.”
The RBA kept the cash rate on hold at 4.25 per cent after its February 7 board meeting, citing an improvement in the global economic outlook for its decision.
