Lowe Provides Wage Growth Forecasts

On wages, RBA Governor Lowe noted the following: “wages growth has picked up as well, but it has only just returned to the rates prevailing prior to the pandemic. A further pick-up is expected, though there is substantial inertia in aggregate wage outcomes even if there are large wage increases in some pockets. This inertia stems from multi-year enterprise agreements, the review of award wages that takes place on an annual basis and public sector wages policies. Our central forecast is for the Wage Price Index to increase by 2¾ per cent this year and 3 per cent over 2023. Broader measures of labour costs, which also matter for inflation, are expected to be growing at a faster rate than this. This reflects the increase in superannuation contributions and pay increases that arise from job switching and job reclassifications in a tight labour market.”

• Note that these levels of wage growth are below the previously outlined RBA yardstick when it comes to generating sustainable underlying inflation in the top half of the Bank’s 2-3% target range (3-point-something, likely ~3.5%), although the broader inflationary dynamic (the Bank expects underlying inflation to print within/above the upper half of its target range through ’23, with both ’22 & ’23 underlying CPI seen at 2.75%) and the tighter labour market may force the Bank’s hand/promote wage growth at a speedier rate.