CHART: Weak inflation is terrible news for Australians hoping for a pay rise

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This could well be the most depressing chart in Australia right now, at least for those expecting a hefty pay increase this year.

Courtesy of ANZ’s economics team, it tracks the relationship between long-term inflation expectations from Australian businesses as part of the monthly NAB business survey against Australia’s wage price index released by the ABS.

When the NAB’s inflation expectations reading is moved 12 months forward, there is a clear relationship that exists between it and the annual change in Australian wage growth.


Already running at a record low level of 2.16%, it suggests that wage increases could get even smaller in the year ahead should the relationship between the two hold true.

It is also worthwhile noting that the NAB survey was conducted before the release of the ABS’ latest CPI report, something that revealed a sharp deceleration in both headline and core inflation in the 12 months to March.

This will no doubt raise the risk that wage growth may slow even further, especially given headline CPI is often used by firms when determining future wage increases.

While Australian job growth has been strong over the past 12 months — rising by 235,300 over the past year — one of the factors that has allowed this to occur has been a sharp deceleration in wage growth.

Smaller pay increases have allowed firms to take on more workers, in essence.

That’s great news for job seekers, but not so much for those who are banking on a hefty pay rise arriving in the years ahead.