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Some Local Banks Still See Risks Of Tighter Rates Despite Recent Wages/Job Misses


Updates from some of the local Australian Banks post recent wages/employment outcomes
NAB: "The easing began as foreign labour began returning from the beginning of 2022 (increased labour supply), and now there are some signs of a slight reduction in labour demand, which we would expect to continue over the next year. This is consistent with NAB and the RBA’s prediction of somewhat higher unemployment, and slower economic growth this year and next. That said, a number of wage adjustments are lagging these evolving trends, namely the next National Wage Case decision (either late this month or early next month), where a 6-7% minimum wage adjustment seems likely but more important from a macro perspective will be the extent of wage rises for others on awards, public sector wage agreements which are shifting higher after prior wage caps, and other Enterprise Bargains, many deferred during the COVID period. The question for the RBA Board will be whether these higher wage rises – which tend to reflect previous labour market tightness – sees it want to take out a little more insurance that the inflation rate will moderate back to 3% by mid-2025. NAB’s view is that there will likely be at least one further rate increase, but that we remain close to the peak of this interest rate cycle."

ANZ: "We think the RBA has some leeway to pause in June given the uptick in the unemployment rate (from 3.54 to 3.66%) and the lack of quarterly acceleration in the Wage Price Index(0.8% q/q in Q1).However, the unemployment rate is still sufficiently low and wage growth sufficiently rapid that productivity growth and the labour market continue to be concerns for the RBA. Our call is still that the cash rate is likely to lift to 4.1% in August, with the risks being tilted to sooner and/or more increases."
CBA: "Today’s labour force survey should be interpreted alongside yesterday’s wages report. Wages grew by 0.8%/qtr, according to the Wage Price Index, with this quarterly print softer than expected by consensus and the RBA. As our Head of Australian Economics Gareth Aird wrote here, heading into this week there was a risk that there could be broad‑based strength in the upcoming economic data. But, the wages data undershot the RBA’s expectations on a quarterly basis. And today’s labour force report does present upside risk to the RBA’s near‑term unemployment rate forecasts. The RBA’s forecasts in their May Statement expect the unemployment rate to average 3.6% over the three months to June 2023. There remains two other pieces of data to watch ahead of the RBA Board Meeting on June 6. April retail trade (26/5) and the April monthly CPI indicator (31/5) are next up."

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