Wage growth likely way behind inflation

Colin BrinsdenAAP
The latest ABS wage index is likely to show pay packets growing at half the inflation rate.
Camera IconThe latest ABS wage index is likely to show pay packets growing at half the inflation rate. Credit: AAP

Debate around cost of living pressures have dominated the six-week federal election campaign and the heat on the Morrison government will likely turn up a notch when the latest wage growth figures are released.

The Australian Bureau of Statistics wage price index for the March quarter is likely to show voters’ pay is growing at half the rate of inflation, despite the government persistently spruiking a strong economy.

Economists expect Wednesday’s data - used by the Reserve Bank of Australia and Treasury to assess wages growth - is likely to show wages grew at a slightly more upbeat 0.8 per cent in the March quarter.

However, this would still leave the annual rate at 2.5 per cent.

While the highest rate since 2014, it is substantially below the annual rate of inflation at 5.1 per cent as of the March quarter.

Prime Minister Scott Morrison declined to preempt the result during his daily campaign press conference on Tuesday.

But shadow treasurer Jim Chalmers wasn’t so restrained.

“We’ll get new numbers which show that the cost of living crisis is set to get worse in this country as real wages fall further and further behind,” he told reporters in Brisbane.

“Australian working families are falling even further behind on Scott Morrison and Josh Frydenberg’s watch.”

Even if economists are wrong and the wage result proves to be stronger because of a tight labour market, there will be little joy for borrowers.

Reserve Bank of Australia is widely expected to lift the cash rate by 25 basis points to 0.6 per cent at its June board meeting, following on from its first rate increase in more than a decade earlier this month.

The minutes of the RBA May board meeting showed it discussed the option of increases of 15, 25 or 40 basis points in the cash rate.

It said a 25 basis points would help signal that the board was now returning to normal operating procedures after the extraordinary period of the pandemic.

But it said an argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates.

Commonwealth Bank senior economist Belinda Allen said a stronger than expected wages result - or a lower than expected unemployment rate - could sway the RBA to lift by 40 basis points rather than 25 basis points in June.

April labour force data on Thursday are expected to show the unemployment falling to 3.9 per cent from four per cent in March.

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