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Wage growth in Australia stagnant at 2.3% despite hourly rate rise

Reserve Bank of Australia target range remains well above index growth to 30 June

Total hourly pay rates, excluding bonuses, rose by 0.6% in the June quarter but annual wage growth remains flat.

Year-on-year wages growth has remained flat at 2.3% for consecutive quarters, firming up the Reserve Bank’s view that job market slack is limiting upward pressure on wages.

Wages growth for the year to 30 June remained stagnant despite total hourly rates of pay, excluding bonuses, beating expectations with a 0.6% rise during the quarter.

The quarterly increase was fuelled by a 0.8% rise in public sector wages, namely in the healthcare and social assistance industry, in which a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states.

Private sector wages rose by 0.5% during the quarter, according to Wednesday’s seasonally adjusted figures from the Australian Bureau of Statistics.

The year-on-year wage price index growth, while in line with predictions for June, has remained in a range of 2.3% to 2.4% since the September quarter of 2018 – well below RBA governor Philip Lowe’s target of “three point something”.

Wage stagnation was a key reason for the RBA delivering dual interest rate cuts in June and July to a record low of 1.0% in a bid to free up spending and create more competition for jobs.

Economists said it was clear that spare labour market capacity had continued to limit growth.

“(It) largely confirms the RBA’s view that spare capacity is limiting upward pressure on wages and the economy needs to generate more jobs to absorb the extra workers,” BIS Oxford Economics’ Sarah Hunter said.

Dr Hunter said the June quarter wages result firmed up expectations that the cash rate would be cut to a record low 0.75% by the end of the year, and possibly cut again in early 2020.

July jobs data on Thursday could further increase the pressure to cut, with economists expecting a slight uptick in unemployment to 5.3%.

Callam Pickering, APAC economist at jobs site Indeed, said the underutilisation rate needed to ease towards 12 per cent from its current level of 13.5% before the RBA’s target wage growth could be achieved.

“That won’t happen overnight nor is it likely within the next year,” Pickering said.

In original terms, annual wages growth to the June quarter 2019 by industry ranged from 1.7% for wholesale trade to 3.3% for healthcare and social assistance.

Western Australia recorded the lowest annual wage growth of 1.6% while Victoria recorded the highest of 2.9%.

The Australian dollar edged lower after the figures were released, dropping from 68.03 US cents to 67.88 US cents by 1150 AEST.

Weaker-than-expected retail and industrial data out of China weighed the dollar down even further.

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