Growth in wages over the December quarter were weaker than even the most pessimistic market forecast.
– Wages grew by 0.8% over the quarter. This was a clear deceleration from the September quarter and marginally lower than the June outcome.
– Importantly, the growth in wages was lower than what the Reserve Bank was expecting, and significantly so – by around one quarter of a percentage point.
– We have previously flagged that there was downside risk to the Reserve Bank’s forecast.
– The boom in overseas arrivals is increasing labour supply and reducing worker shortages.
– In Australia around two thirds of wages are set by enterprise agreements or awards. These take time to expire, renegotiate and update. The inertia this creates means aggregate wages growth in Australia is less responsive to conditions in the labour market.
– This is a key difference when compared to other OECD countries, which may help explain the relative underperformance in wages growth in Australia.
So, What does all this mean for the Reserve Bank?
Watch this short video to find out more:
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