Australian wage growth decelerated to its slowest pace in a year during the June quarter, falling short of market expectations, while softer gains in the private sector suggest the labor market was cooling.
Data from the Australian Bureau of Statistics showed the wage price index rose 0.8 percent in the three months to June, compared to 0.9 percent in the first quarter and the lowest since the June 2023 quarter. This fell short of the forecast 0.9 percent rise.
Annual pay growth held steady at 4.1 percent, but past growth was revised up slightly, indicating a marked slowdown in the annual rate will occur in the third quarter.
Private sector wage growth rose 0.7 percent in the quarter, the weakest increase since the December 2021 quarter, as the jobless rate ticked up in response to elevated interest rates.
RBA relieved by easing wage pressures
According to Sean Langcake, the head of macroeconomic forecasting for Oxford Economics Australia, the RBA would be somewhat relieved to see wage pressures easing. However, Langcake noted that without an improvement in productivity growth, the current pace of wage growth is still a little too strong for inflation to return to target quickly.
Monetary policy unchanged
The Reserve Bank of Australia has kept policy unchanged since November, judging the current cash rate of 4.35 percent – up from 0.1 percent during the pandemic – is restrictive enough to bring inflation back to the 2-3 percent target band while preserving employment gains.
Labor market still running hot
Yet the RBA still views the labor market as running a bit hot, one reason underlying inflation, at 3.9 percent last quarter, is only expected to return to target by the end of 2025.
While some analysts had argued rates were not high enough, the RBA’s reluctance to hike further has led some economists to forecast a rate cut early next year, trailing other major central banks.
Markets are now betting on an easing by year-end, having only recently implied a risk of further rate increases.
The overall increase in annual wages was just enough to surpass the 3.6 percent inflation rate, a welcome return to real pay growth after years of negative outcomes.
Incomes will get an additional boost from major tax cuts that took effect in July.
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