There is little to suggest Australian wages will rise in the short-term, despite reports of industry labour shortages, the Reserve Bank of Australia (RBA) has concluded.
In its latest Monetary Policy Meeting minutes, released Tuesday, the RBA argued against raising interest rates from rock-bottom levels as actual inflation remains below the reserve’s two to three percent target range.
The RBA has long held that elevated employment rates and real wage growth should drive this inflation, under the assumption increasing levels of take-home pay will flow back into the economy — and reduce the need for super-low interest rates to stimulate spending.
But languishing wage growth means the reserve does not expect the inflation target to be met any time before 2024.
Instead, the RBA noted that the “recent lockdowns and earlier reports of labour shortages had not appeared to affect most firms’ expectations for wages growth, which were generally returning to around pre-pandemic norms.”
This trend carried over into industries which had experienced significant labour shortages, the reserve added, suggesting the closed international border has done little to spark wage growth for Australian workers on the whole.
Where wage growth was observed, it was largely due to “earlier wage cuts that had been reversed.”
“Overall, there were few indications from disaggregated wages data or from the Bank’s liaison program to suggest that aggregate wages growth was likely to accelerate sharply in the period ahead,” the reserve added.
Despite new retail banking data suggesting household expenditure spiked in New South Wales when COVID-19 restrictions lifted last week, the RBA held also that household consumption of discretionary services was unlikely to return to pre-pandemic levels before 2022.
The RBA did cede that “less accommodative monetary policy” would constrain rising housing prices — another focal point for financial regulators.
However, “it would result in fewer jobs and lower wages growth, which would in turn create further distance from the goals of monetary policy – namely, full employment and inflation sustainably within the target range.”
All up, the unlikelihood of boosted wages and spending convinced the RBA to keep interest rates at just 0.10 per cent.
As the reserve maintains the cash rate is unlikely to budge for years, some retail banks have enough confidence in Australia’s economic recovery to bump their fixed home loan rates.
Westpac today revealed its two-, three-, four- and five-year fixed rates will jump by 0.10% for some new owner-occupier mortgages.
The move follows Commonwealth Bank and ING, who last week lifted some fixed home loan rates.
Those moves suggest an optimism among lenders that goes beyond the views expressed by the RBA, driven by the promise of loosening COVID-19 restrictions and the eventual reopening of Australia’s international border.