Wages rise stronger than expected

Wages growth exceeded forecasts in the fourth quarter of 2017, fuelling the idea that rates might rise sooner than anticipated.

Wages rose 0.6 per cent in the fourth quarter, and rose 2.1 per cent over calendar 2017.

Australian wages growth came in stronger than expected in the fourth quarter of 2017, lending support to the idea that interest rates might be raised sooner than anticipated.

Wages rose 0.6 per cent in the fourth quarter from the third quarter, and rose 2.1 per cent over calendar 2017, the Australian Bureau of Statistics said.

Economists expected a 0.5 per cent rise over the quarter.

The Australian dollar initially rose 0.2 per cent to US79.01c after the data release before dropping back to US78.91c.

The best performing industry sectors were accommodation and food services, as well as media and telecommunications.

Still, the overall picture for wages is soft.

Head of macroeconomics at BIS Oxford Economics, Sarah Hunter, said wages growth had barely outpaced inflation of 1.9 per cent in 2017.

“In real terms, the average worker saw their spending power increase by just 0.2 per cent over 2017,” she said.

Despite very strong jobs growth in 2017, there is still spare capacity in the labour market, which along with low unionisation and globalisation will keep a lid on wages growth for a while yet, Ms Hunter said.

“Wages growth is unlikely to significantly outpace price inflation this year, and with no reason to hike this will keep the RBA on hold until 2019,” she said.

Years of depressed wage gains pose a risk to the outlook for consumer spending and GDP growth over time, something the Reserve Bank of Australia has warned of, adding that record household debt adds to the worry.

In a deluge of commentary since the start of the February, the RBA made it clear that without a recovery on the wages front, inflation might not return to its 2-3 per cent target band.

Interest rates have already been held at record lows since mid-2016, with economists expecting the RBA could be sidelined into 2019 or longer.

RBA Governor Philip Lowe told parliament wages growth of closer to 3.5 per cent on year is needed to lift the inflation rate.

However, Australia’s job market has been strong in the last year, adding more than 400,000 jobs in 2017 and lowering unemployment, raising the potential that eventually wages growth will heat up over time.

In the private sector, wages rose 0.4 per cent in the fourth quarter, while public-sector wages rose 0.6 per cent.

Pay rates in the mining and resources industry posted the slowest increases over the year, at 1.4 per cent, while public sector health care and social assistance wages rose 2.8 per cent.

The Northern Territory recorded the lowest wages growth for the year at 1.1 per cent, while Queenslanders and Victorians enjoyed the best growth, of 2.4 per cent.

Dow Jones Newswires, AAP