If there’s one thing that Australians have become used to, reluctantly, over recent years is that our wages aren’t growing as fast as they used to.
Gone are the days of 4% plus increases enjoyed before the global financial crisis, and even the 3% plus gains seen in the short period following.
Yes, they’re gone — at least for the moment.
According to data released by the Australian Bureau of Statistics, hourly wages increased by just 0.48% in seasonally adjusted terms in the final three months of 2016, leaving the annual rate at a paltry 1.87%.
The news was even more depressing for private-sector workers — the largest cohort in the Australian labour market — who saw their wages — on average — increase by an even smaller 1.8% from a year earlier. At 2.25%, public sector workers fared a little better, although that too was the lowest on record.
Like countless wage price index (WPI) reports before it, the figures surprised many who were looking for signs that wage growth was steadying, or even starting to lift.
As this chart from the Reserve Bank of Australia’s (RBA) semi-annual Bulletin shows, the continued decline in wage growth has come as a surprise to them too.
Every year since 2011, the bank has forecast that wage growth would accelerate, only to be thwarted by reality.
It really is a telling, and goes some way to explaining why the cash rate currently sits at a record-low of 1.5%.
While the RBA has been consistently wrong on that front, it’s not alone. Central banks worldwide have been easing monetary policy in order to stimulate economic activity and inflation, and, despite tens of trillions of quantitative easing and hundreds of rate cuts, even now they’re having limited success.
And that includes stirring wage pressures.
The question the RBA, and others, are now asking is why wage inflation is not accelerating as it did in the past when monetary policy stimulus was applied?
The RBA says that it thinks its forecast 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.
It also suggests a decline in inflation expectations, lower corporate profitability and the need for the Australian dollar to adjust to improve international competitiveness have also contributed to lower wage growth.
The bank also says that a pronounced slowdown in wage growth in mining and mining-related industries has also been a contributing factor.
It all sounds fairly bleak, but, as it has done in the previous six years, the RBA is forecasting that those factors, collectively, will likely lessen in the years ahead, allowing wage growth to accelerate to above 2.5% by 2019.
“The Bank’s expectation is that wage growth will gradually pick up over the next few years, as the adjustment following the end of the mining boom runs its course,” it said in its Bulletin today.
However, it cautions that the extent of the recovery will, in large part, depend on how wage growth will respond to improving labour market conditions, including the level of underutilisation.
While the RBA is hoping to make it seventh time lucky on its wage forecasts, Australia’s weak jobs report for February — including a spike in unemployment and underemployment — is unlikely to fill it with confidence.
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