Home Insights Wages Growth Up, But Not Enough For RBA To Pull The Rates Trigger

Wages Growth Up, But Not Enough For RBA To Pull The Rates Trigger

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Wages rose 0.7% in the December quarter and 2.3% annually, according to the latest wage increase data released today by the Australian Bureau of Statistics.

While there were signs that wages could have fallen as the labor market tightened, while the reserve bank’s annual wage growth was below the desired 3% to 4%, “wage wages”. There is little evidence of a “boom”.

RBA does not raise cash rates until higher wages. This will probably not be raised until late 2022 or early 2023.

To date, the economy has grown stronger and faster than many expected, including the RBA, since the pandemic recovery first began.

According to the latest workforce survey, the workforce was resilient despite the surge in COVID-19 cases until January.

The unemployment rate was stable at its lowest level in 13 years, while the effects of the Omicron variety were felt in working hours. Working hours were reduced by 8.8%, with the largest reduction seen as many were forced to take leave in both New South Wales and Victoria, where the virus was most affected.

But last month, 12,900 jobs were added, part-time jobs increased by 30,000 and full-time jobs fell by 17,000. The unemployment rate is only 4.2%, the lowest level since 2008, and the workforce is still close to record highs.

This shows that the labor market remains resistant to the effects of Omicron. In addition, the underutilized rate of those who are unemployed or looking for more working hours has dropped significantly, indicating the potential for stronger wage increases.

Reserve Bank of Australia

Reserve banks wait for higher wage growth before triggering interest rates.Photo: Getty


With the number of cases declining, the labor market may continue to tighten. Jobs are at record highs, according to ABS, as labor demand remains strong. SEEK’s classified ads also reached record levels in January, with ANZ’s classifieds showing a slight decline last month, but 9.6% above the lowest recorded during the Delta blockade.

Key indicators show that the labor market is gaining momentum, unemployment continues to decline, could hit record lows in 2022, and cash rates are likely to rise this year. ..

But so far, tight labor markets have helped accelerate wage growth, but still far from the level required by the RBA.

Data released today by ABS show that growth in the Nominal Wage Price Index (WPI) for the December quarter accelerated by 0.7% (2.3% year-on-year). This is a bit off the desired 3% to 4% of RBA.

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Perhaps, however, the evidence is inconsistent with the breakout or boom.

It should be remembered that wages rose 0.7% in the December quarter, the fastest quarterly rise since 2014, but have been weak over the last decade.

Overall, total public and private wages have increased by 2.1% and 2.4% over the past year, respectively. Quarterly growth across both the public and private sectors will be 2.9% and 2.7% annually, respectively.

This means that private sector wage growth, including bonuses, is more than 3% per annum.

The most important industries that contributed to the rise in wages in the December quarter were medical and social assistance (0.6%), retail (1.2%), and government and safety (0.7%).

By industry, the biggest wage increases in the September quarter of last year were construction and professional, scientific and technical services. Wages in both industries have risen, supported by pandemic-related turmoil.

ABS states that these previous tight pockets of the labor market are beginning to expand, and while rising wages are attracting and retaining skilled staff, labor demand remains high. The 2021 quarter.

Why is this important for housing?

As the economy continues to exceed expectations, many have submitted forecasts on the timing of the first cash rate hike from the RBA.

Some have pointed out the possibility of a rate hike in June this year.

If the RBA raises interest rates earlier this year than previously expected, this will serve as a further handbrake against the already slowing rise in home prices. This will increase the repayment of existing borrowers and reduce the borrowing capacity of new borrowers.

However, a prerequisite for banks to raise their cash rates is to inflate “sustainably” in the range of 2% to 3%. This is a scenario that requires a wage increase of 3-4%.

Therefore, the latest inflation data is stronger than expected and the underlying inflation is back within the RBA’s target range, but the board waits for evidence that wages have turned corners for sustainable growth. I am.

Rising interest rates will inevitably put a handbrake on the rapid rise in home prices.Photo: Getty


Obviously, we aren’t there yet.

Nonetheless, key indicators of continued labor market tightening are making progress faster than the RBA expected. It has not yet been converted to significantly higher wages.

The RBA may also wait for at least two powerful CPI prints before raising the cash rate. This will make August 2022 as early as possible in that regard.

However, even if the RBA lasts until late 2022 or early 2023, mortgage rates could rise regardless. Fixed rates have already bottomed out since the RBA’s term funding facility expired and have been on the rise in recent months, with floating rates likely to start rising later this year.

Rising mortgage rates limit the amount that new borrowers can achieve, and existing borrowers may see higher repayments.

Want to read more?

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