Wages growth low, business looking up

Chart of the week: Real wages continue to fall

The rebalancing of the Australian economy is continuing but with little risk to inflation. In July wages growth was soft and business conditions and confidence was improving, as measured by National Australia Bank business survey.

The second quarter wage price index rose by a slightly weaker than expected 0.6 per cent quarter on quarter for annual growth of 2.6 per cent. While growth in both private and public wages stepped down in the quarter, annual growth in wages in the private sector fell to a fresh all-time low of 2.4 per cent year on year. Real wages growth has now been negative for three consecutive quarters.

In contrast however, ANZ’s weekly ANZ-Roy Morgan consumer confidence indicatorwas weaker for the second successive week. We attribute this to last week’s reported jump in the unemployment rate, a fall in the Australian sharemarket (which has since reversed) and geopolitical tensions.

These releases do not change our view that the RBA will not change the cash rate as the economy transitions away from the mining boom. We continue to expect the first rate hike in the next tightening cycle to come in May next year.