Wages growth slowest since 1997

WELL, it was good while it lasted. New data shows we’re worse off now than since at least 1997 — and quite possibly since the late ‘60s.

We’re getting poorer all the time. Picture: Richard Gosling

NEW figures have challenged the Reserve Bank’s confidence that businesses are reluctant to offer annual wage rise of less than two per cent.

Private sector wage rates rose by just 1.9 per cent over the year to March, the Australian Bureau of Statistics said on Wednesday.

That, like the 2.1 per cent growth rate for wages across the public and private sectors combined, was the slowest since the data series began in 1997.

Other measures suggest wage growth may actually be at its slowest pace since the late 1960s.

The wage price figures came the very day after the RBA had expressed confidence that a forecast pick-up in economic growth and downward drift in unemployment would start to lift wages growth within a couple of years.

“In addition, information from the Bank’s business liaison suggested that firms generally had been unwilling to make offers of wage growth below two per cent,” the RBA said in the minutes of its May 3 policy meeting, released on Tuesday.

But the bureau’s figures show the RBA’s confidence may be misplaced.

Wages growth among businesses had already fallen below that crucial two per cent pace well before the RBA’s board had even met. The outlook for wages is a key plank in the RBA’s forecast for price inflation, which in turn feeds into its interest rate decisions.

The interest rate cut on May 3 was driven by surprisingly weak consumer price index figures in late April, which led the RBA to cut its forecast for inflation and, in turn, cut the cash rate to an all-time low of 1.75 per cent.

The RBA wants to boost economic growth to head off a vicious cycle of lower expectations feeding into smaller wage and price rises, which in turn validate and entrench those expectations. The soft wages figures on Wednesday show the central bank has a battle on its hands.