Real incomes decline as wage growth of 0.7% in March quarter undercuts inflation | Australian economy
Australian wage growth barely budged in the March quarter, with wages rising at less than half the headline inflation rate, fueling concerns that wages will continue to decline in real terms.
In the first three months of 2022, the seasonally adjusted wage price index (WPI) rose 0.7% from the December quarter to be 2.4% higher than a year earlier. Economists had forecast a quarterly and annual rise of 0.7-0.8% and 2.5%, respectively.
The increase in the WPI – the highest in just over three years – remained well below consumer price inflation for the March quarter, with the underlying inflation rate of 3.7% being the highest since 2009, with the overall CPI indicator including more volatile price movements. at 5.1%.
The latest data comes just three days before polls close for an election campaign in which pay rises have been one of the most contentious issues.
Labor leader Anthony Albanese said he “absolutely” supports workers’ wages keeping up with inflation. Prime Minister Scott Morrison, however, warned that raising wages too quickly would fuel inflation and cause the Reserve Bank to raise interest faster, hurting borrowers.
Jim Chalmers, Labour’s shadow treasurer, said in a tweet the gap with consumer prices at 2.7% was the largest in 20 years.
L’Actu said the gap between inflation and worker wage increases meant workers were on track to lose $4,000 on average this year in real terms, five times the loss in 2021.
Actu secretary Sally McManus said the WPI figures were “a disaster for workers”. The union body was before the Fair Work Commission on Wednesday to assert its demand for an annual increase of 5.5% for minimum wage employees.
Earlier in May, the RBA said its liaison teams had detected faster wage increases as employers scrambled to retain and attract staff as the unemployment rate fell to levels not seen since the 1970s. Even so, the central bank expected non-bonus wage growth to lag inflation by about 3 percentage points and not catch up until 2024.
“The annual rate of wage growth has increased for each of the past five quarters from a low of 1.4% in the December 2020 quarter,” said Michelle Marquardt, head of price statistics at ABS, in a press release.
Wage increases in the public sector continued to weigh on the overall figures, rising by 2.2% compared to the previous year. Private sector wages rose 0.7% for the quarter and 2.4% for the year.
Investors considered weak wage growth to reduce the chances of a big rate hike by the Reserve Bank at its June meeting. The Australian dollar quickly lost about a quarter of a US cent as higher greenback rates made the currency more attractive.
Sarah Hunter, senior economist at KPMG, said the trajectory of increased annual growth will approach 3% by the end of the year. The RBA’s forecast for headline inflation is 5.9%.
The WPI “is lagging on price inflation, which means real wage erosion continues,” Hunter said. “These numbers alone are unlikely to push the RBA to a more aggressive pace of rate hikes – although we still expect to see four more moves this year, to take the cash rate to 1.25%. ” After the increase in May, it now stands at 0.35%.
Sean Langcake, head of macroeconomic forecasts for BIS Oxford Economics, also expects the RBA to raise rates at next month’s meeting due to the acceleration in expected wage increases.
“ABS noted that the average size of pay increases grew at a relatively rapid rate of 3.4%,” Langcake said. “But only a small portion of jobs benefited from a change in wages during the quarter; this is typical in March, but was likely exacerbated by Omicron disturbances.
Labor market conditions will be published on Thursday by the ABS. April’s unemployment rate is expected to dip just below 4%, making it the lowest since the mid-1970s.