CHART: The RBA has been terrible at forecasting wages growth for years

Entrenched slow wages growth is a major theme for the Australian economy right now.

As is the case in many other advanced economies around the world, Australia has been struggling with low levels of inflation in the low-interest rate world, and slowing household income growth is part of that equation.

The rate of pay increases has been slowing for years — a pattern that not only could contribute to workers feeling like they can’t get ahead, but is dragging on the federal budget as income tax revenue continues to come in lower than expected by Treasury.

It’s not just Treasury that has been too optimistic, however. The RBA’s semi-annual Bulletin, released yesterday, contained this astonishing – or perhaps depressing – chart showing just how continually wrong the central bank’s wages forecasts have been for years.

The legs off to the right could be seen to represent hope, while the black line has been the reality.

The chart has been a big talking point in financial circles. The RBA says it thinks the errors have been largely been as a result more slack in the labour market than anticipated, along with a sharper-than-expected drop in Australia’s terms of trade.

As you can see, there’s another nice big jump up and to the right in the latest forecasts. Here’s hoping.

David Scutt takes at look at this in more detail here.

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