Later today the Australian Bureau of Statistics (ABS) will release its quarterly wage price index.
While generally regarded as a second tier data release, it’s taken on increased significance this year given tepid inflationary pressures that exist within the Australian economy at present.
With labour market conditions softening noticeably in recent months, another weak wage outcome will almost certainly see markets question whether the RBA’s easing cycle is truly over given its implications on the outlook for household consumption and domestic inflationary pressures.
Here’s the state of play:
- The index measures changes in hourly rates of pay, excluding bonuses.
- In Q2 2016, the index increased by 0.49%, the same level seen in the previous two quarter. Without rounding, it was the weakest quarterly increase seen since the survey began in 1997.
- Wages in the private sector grew by 0.49% — also a record low — while those in the public sector increased by a comparatively rapid clip of 0.64%.
- Over the year, the index rose by 2.06%, again the lowest level on record and almost certainly the weakest pace seen since the early 1990s recession.
- Private sector wage growth was the major drag, increasing by just 1.98% over the year, the lowest level on record.
- Public sector wages increased by 2.44% over the same period, up from the 2.38% level seen in the year to March.
- Though weak inflationary forces and falling national incomes have contributed to the slowdown, heightened levels of labour market slack — underemployment and underutilisation — is also a major factor in putting downward pressure on wages.
- There’s an abundance of available labour and not enough work to go round, and it’s creating a headache for the RBA as it attempts to spur on wage and inflationary pressures.
- This is why today’s report is important.
- Much of the RBA’s inflation forecasts are based on the view that the deceleration in wage growth is now at or past its nadir. Recent stability in the wage price index says that’s likely the case.
- However, one of the uncertainties the RBA is currently grappling with is just how much labour market slack currently exists within the Australian economy.
- Underemployment — people who want to and are available to work more hours — currently sits at record highs while underutilisation — underemployed and unemployed persons combined — is well above the levels seen during the global financial crisis.
- No one, not even the RBA, really knows just how weak labour market conditions truly are right now.
- Should another weak wage outcome arrive today, it will increase downside risks to the outlook for inflation and household spending, and as a consequence the risk of a further rate cut being delivered from the RBA at some point next year.
The report is scheduled to be released at 11.30am AEDT.
Business Insider will have all the details as soon as the data drops.
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