MNI DATA ANALYSIS:Wage Growth Reduce Upside Risk to RBA MonPol

By Sophia Rodrigues

     SYDNEY (MNI) - Wage price index in Australia rose less than expected in the

first quarter, leaving some questions on whether wage growth has indeed troughed

and raising worries about the outlook for household consumption and inflation.

     The data suggests the upside risks to the Reserve Bank of Australia's

monetary policy stance may be a bit too optimistic, and there is a greater

chance that the cash rate would remain on hold for longer.

     Data published by the Australian Bureau of Statistics Wednesday showed wage

price index rose 0.5% q/q in Q1, the same pace as Q4 which was revised downwards

from +0.6%. The outcome was lower than MNI median forecast for +0.6% q/q.

     However, wage price index for the two quarters prior to that were each

revised up to +0.6% from +0.5%. This is why the y/y index rose 2.1% y/y, the

same pace as Q4, and matched the MNI median forecast. 

     The slowing in q/q wage growth to +0.5% in the last two quarters from +0.6%

raises some doubt on whether wage growth has troughed as suggested by the RBA.  

     This was the 13th quarter in a row where y/y wage price index has risen

less than the mid-point of the Reserve Bank of Australia's 2% to 3% target band.

It was the 22nd consecutive quarter where the rise was below 3.5% which RBA

Governor Philip Lowe has suggested is the ideal growth rate needed to get

inflation at the mid-point of the target band.

     In fact, But none of the industries showed wage price index of even 3.0%

y/y -- the largest was 2.7% y/y in healthcare and assistance.

     Private sector wages grew at 1.9% y/y for three quarters in a row. This is

an acceleration from +1.8% in each of the two quarters prior to that but has

remained below 2.5% growth for 13 quarters in a row.

     In original terms, wages in retail trade sector rose 0.2% for the second

straight quarter, and in y/y terms slowed to +1.5% from +1.8%. A lack of

acceleration in retail sector wages suggests continued competition in the sector

and raises concerns on how long it would take for the downtrend in retail prices

to dissipate. This is important for the inflation outlook.

     Construction wages slowed to +0.2% q/q from +0.6% in Q4. This indicates

there isn't yet any pressure on construction wages despite strong growth in the

industry. This would ideally be the first sector to show upward pressure on wage

growth given the large amount of infrastructure work going on. In y/y terms too,

construction wage index slowed to 1.7% from 1.9% rise in 2017, though a minor

bright spot is that it is better than 1.6% rise in 2016.

     Wages in wholesale trade was another drag, rising 0.2% q/q for the second

straight quarter and in y/y terms slowing to +1.7% from +2.0%. The only two

sectors showing decent wage acceleration was education and training, and

healthcare and assistance. 

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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