Jobs boom, wages slump as RBA takes economy’s temperature

The jobs boom has all but masked any effects of the end of Jobkeeper, in a trend that may ultimately lead to “wage pressure” if borders remain shut.

Governor of the Reserve Bank of Australia Phillip Lowe. Picture: AAP

The jobs boom on the back of the pandemic rebound has all but masked any effects of the end of the Jobkeeper supplement, in a trend that may ultimately lead to “wage pressure” if borders remain shut.

In its quarterly update on monetary policy the Reserve Bank of Australia said Australia’s jobs market was racing out of its COVID-19 slump.

The RBA said while the recovery was proving uneven across sectors of the economy, most notably those exposed to international travel, tourism and education, other sectors were booming.

The bank also warned despite the jobs recovery wage growth would remain depressed.

“Wages growth and inflation remain subdued and, unlike the real side of the economy, have been broadly in line with earlier expectations,” the RBA said.

“Wages growth has been especially slow in recent times.”

“Some pick-up in wages growth is expected as the unemployment rate falls further.”

However, the bank warned wage growth, which tracked at 1.4 per cent over 2020, was likely some years off before resuming a growth consistent with inflation.

Inflation is currently tracking well below the RBA’s desired level and unlikely to hit its 2 per cent target until at least mid-2023.

In its update the central bank notes signs of inflation were already appearing in some sectors of the economy, particularly those exposed to the booming housing and construction market.

The RBA said subsidies to stimulate construction brought in by the federal government were having the desired effect, but potentially risked spilling over price barriers to wipe out any potential cost offset for home builders.

“The strong demand induced by these subsidies has led to cost pressures and some delays to construction timelines,” the RBA said.

“This has pushed base prices for newly constructed detached homes higher, but the effect on measured inflation has been offset by the treatment of government construction grants.”

Lumber prices have soared on the back of a massive expansion in homebuilding, with industry sources pointing to a 20 to 60 per cent increase on timber since November last year.

The RBA laid out two likely paths the economy could take in coming years, which could either see an expansion of inflation on the back of strong household consumption fed from savings or alternatively weak spending and low inflation on the back of moves to pay down debt.

Commonwealth Bank global economics and market research associate Carol Kong said the RBA’s May statement represented a significant upgrade to its assessment of the economy’s health.

“We see upside risks to the RBA’s inflation and wages growth forecasts, given the expected boom in the Australian economy and low net migration,” she said.

“Our constructive view on the Australian economy suggests risks are tilted to an earlier increase in the cash rate than the RBA’s current “2024 at the earliest” guidance, thereby supporting AUD.”