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CBA: There Is No Wage Price Spiral In Australia

AUSTRALIA

CBA note that “whilst wages growth across the economy is moving higher and some people are receiving large pay rises, there has not been broad‑based wages pressures. Indeed real wages growth (as measures by headline inflation deflated by the wage price index) is deeply negative. As we have stated previously, the RBA is not facing a wage price spiral like is being observed in some other jurisdictions. Put another way, the RBA does not have to run hard against wages growth by aggressively hiking the cash rate. However, the RBA has been tightening at an incredible pace despite the official wages data, and our own, indicating we simply do not have strong broad‑based wages growth. The news of course in today’s data was not all bad. Wages pressures are starting to percolate which is what policymakers want to see. But the rate at which they are building has so far been slow and gradual and very much supports what RBA Governor Lowe said in February 2022 about ‘inertia’ in Australia’s wage setting process. That narrative of course was dropped once the RBA embarked on their aggressive tightening cycle.”

  • “The WPI has its limitations. And it is not the only measure of labour costs. Indeed, we will receive an update on average weekly earnings tomorrow. But the WPI is still a very important publication that enables us to better understand what is occurring across the economy with respect to wages inflation. We have previously stated that a 50bp rate hike at the September Board meeting is not a done deal. Today’s data adds weight to the case for a smaller than 50bp hike (either 40bp or 25bp). Next up is the July labour force survey (due tomorrow). Our forecast is for the unemployment to remain flat at 3.5% but the risk sits with a slight uptick in the unemployment rate”
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CBA note that “whilst wages growth across the economy is moving higher and some people are receiving large pay rises, there has not been broad‑based wages pressures. Indeed real wages growth (as measures by headline inflation deflated by the wage price index) is deeply negative. As we have stated previously, the RBA is not facing a wage price spiral like is being observed in some other jurisdictions. Put another way, the RBA does not have to run hard against wages growth by aggressively hiking the cash rate. However, the RBA has been tightening at an incredible pace despite the official wages data, and our own, indicating we simply do not have strong broad‑based wages growth. The news of course in today’s data was not all bad. Wages pressures are starting to percolate which is what policymakers want to see. But the rate at which they are building has so far been slow and gradual and very much supports what RBA Governor Lowe said in February 2022 about ‘inertia’ in Australia’s wage setting process. That narrative of course was dropped once the RBA embarked on their aggressive tightening cycle.”

  • “The WPI has its limitations. And it is not the only measure of labour costs. Indeed, we will receive an update on average weekly earnings tomorrow. But the WPI is still a very important publication that enables us to better understand what is occurring across the economy with respect to wages inflation. We have previously stated that a 50bp rate hike at the September Board meeting is not a done deal. Today’s data adds weight to the case for a smaller than 50bp hike (either 40bp or 25bp). Next up is the July labour force survey (due tomorrow). Our forecast is for the unemployment to remain flat at 3.5% but the risk sits with a slight uptick in the unemployment rate”