Wages growth continues to decelerate, falling to 3.2 per cent in 2024 and adding to the case for more interest rate cuts.

While bad news for workers, the Reserve Bank of Australia will be encouraged that the tight labour market does not appear to be contributing to a rise in staffing costs and inflation.

On a quarterly basis, the 0.7 per cent rise in the wage price index, as reported by the Australian Bureau of Statistics on Wednesday, was down from the 0.8 per cent increase in the three months to September.

It was the equal lowest rise in quarterly wages since March 2022, ABS head of prices statistics Michelle Marquardt said.

“At 3.2 per cent, the annual increase in wages was down from 4.2 per cent in December quarter 2023 and is the equal lowest since September quarter 2022,” she said.

Despite delivering mortgage holders a first interest rate cut in more than four years on Tuesday, RBA governor Michele Bullock made clear the board would not rush into more reductions without more certainty that inflation was truly and sustainably descending to target.

Part of the concern is that an unexpectedly tight labour market, with unemployment at a historically low 4 per cent, would contribute to unsustainable growth in wage costs for employers and prices rising in turn.

In the bank’s Statement on Monetary Policy, released alongside the rate cut on Tuesday, the bank acknowledged there is a risk it has misjudged how much excess demand there is in the labour market.

“There’s a lot of debate out there in the market about what level of unemployment or employment is consistent with low and stable inflation,” Ms Bullock said.

“I’m certainly not committing any number on what that unemployment rate is, but we are continuing to test how low we can keep unemployment without adding to inflationary pressures, and so far, in good news, we’re achieving it. But there are risks.”

Treasurer Jim Chalmers said wages were going up faster than inflation, which is something his government had deliberately targeted.

“We want Australians to be earning more and keeping more of what they earn,” he told ABC Radio National.

“We have got real wages growing again.”

Public sector wages grew slower than the private sector, despite jobs growth in the public and non-market sectors, such as health care, outstripping the market sector.

The RBA said government spending had boosted strength in the labour market, with growth in non-market jobs adversely affecting employers in the private sector.

“Strong labour demand in the non-market sector has likely contributed to tighter conditions in the market sector,” the bank’s economists said in its Statement on Monetary Policy.

“The strong growth in health care employment has affected broader labour market conditions, drawing in workers and contributing to tight conditions facing firms in other industries.”

The coalition has criticised Labor for fuelling inflation and crowding out the private sector as a result of excessive government spending.

 

Jacob Shteyman
(Australian Associated Press)