RBA sees wage growth still stalling

A Reserve Bank economist has warned that wage growth might stay lower for longer.

RBA assistant governor Luci Ellis says wages will stay on hold. Picture: Fohn Feder

A Reserve Bank economist has warned that wage growth might stay lower for longer, fuelling doubts about the government’s ­expectation of a pick-up.

Luci Ellis, an RBA assistant governor, said there was “no guarantee” wage growth would rebound following the resource boom, and suggested the unemployment rate might have to fall quite a bit more than thought before wages started accelerating.

“Our forecasts are for wage growth to pick up from here, but not immediately, and then only gradually,” she said, speaking at a breakfast in Sydney yesterday.

The Reserve Bank has previously suggested wages would pick up noticeably once the unemployment rate fell below 5 per cent. It is now 5.5 per cent.

“But we’re mindful that, as we approach that figure, there’s a risk we find there is more room to come down before wage growth picks up in earnest,” she added, noting it had not picked up noticeably in the US and Japan, which have much lower rates.

The government shaved its wage growth forecast in its ­December budget update — pencilling in 2.75 per cent next year, or 45 per cent above the current rate of 1.9 per cent — but most economists think this is too ambitious.

Ms Ellis’s comments came as businesses reported the highest levels of confidence since April. “It may reflect the improved global economic backdrop, but it is important to note that the survey was conducted before the current turbulence in international financial markets,” said National Australia Bank chief economist Alan Oster.

The bank’s closely watched monthly business survey revealed business trading conditions improved between December and January, and remain around the highest reported levels in a decade.

“The employment index remains consistent with a solid rate of job creation of approximately 20,000 per month, which is less rapid than the current trend rate of 25,000 per month,” he said. This should push the jobless rate down in the first half of the year, he said.

ANZ economist Daniel Gradwell said the report was “extremely encouraging”. “Capacity utilisation is now sitting at the highest rate since 2008, and profitability continues to build on its very strong 2017,” he said.