Australia: Wage growth reinforces the patient stance in the RBA – UOB

Lee Sue Ann, Economist at UOB Group, comments on the recently released wage growth results in the Australian economy.

Key Takeaways

“Australia’s wage price index rose 0.7% q/q in seasonally adjusted terms for 4Q21.The quarterly increase was in line with estimates, and a tad higher than 3Q21’s reading of 0.6% q/q. On an annual basis, the index was up 2.3% y/y, slightly higher than the previous reading of 2.2% y/y.”

“The Reserve Bank of Australia (RBA) has repeatedly said that wage growth beyond 3% is needed to help convince it that inflation is back within the 2-3% target band. Although wages came in at the fastest seasonally adjusted increase since 3Q18, the gain lagged the increase in consumer prices.”

“While further tightening in the labour market should see wage growth continue to rise, this would only occur at a gradual pace, and not at a pace that is likely to bring the RBA off the sidelines in coming months to raise interest rates for the first time since 2010. We still look for rate hikes only in 2023, though we now flag the potential risk for that to occur earlier than our projection. The next RBA monetary policy meeting is on 1 Mar.”