Strong wages growth still an issue for RBA to watch
A lower than expected 3.6 per cent lift in wages, still the highest rate of growth in more than a decade, must not signal to the government that it can lose focus on the potential for things still to get out of hand. The jobs/wages outcome has quelled immediate fears that a wage-price spiral is building, signalling the need for the Reserve Bank of Australia to take a more aggressive stand on future interest rate rises. But the impact of changes to industrial relations laws already made, and super-sized rises given to some sectors, have yet to work their way through the system.
Much of the December quarter increase was delivered to workers in the private sector who are in demand and on individual contracts. The danger still lies in wage growth taking root en masse across industries. These conditions have been set up by the Albanese government’s changes to industrial relations laws that signal a return to industry-wide bargaining. Special wage increases awarded to workers in aged care have provoked demands for similar treatment for workers in other sectors in the government’s favoured care economy.
Despite being lower than anticipated, the Australian Bureau of Statistics figures showed wage growth in the December quarter was at its highest rate since the September quarter in 2012. Seasonally adjusted wage growth in the private sector was 0.8 per cent, slightly higher than wage growth in the public sector of 0.7 per cent. But one feature of the December quarter figures is that the rate of pay growth in the public sector had continued to build momentum, while in the private sector it had slowed. According to the ABS, the much larger size of the private sector meant it was still the driver of Australian wage growth, year on year. Jobs covered by an individual arrangement led the way. The ABS said this was because many jobs covered by an individual arrangement were market sensitive and tended to react more quickly to labour market conditions. Employers were more likely to pass on wage increases to retain or attract workers in key roles.
Government must be careful not to read too much into the latest numbers. Jim Chalmers said the data showed there was no evidence of a wage-price spiral in the economy. When inflation is taken into account, wages are still going backwards. Factoring in the 7.8 per cent jump in consumer prices, real pay fell by 4.5 per cent. ACTU secretary Sally McManus said more needed to be done to get wages moving.
This is where the danger still lies for the Reserve Bank as it considers what to do with future interest rates. RBA governor Philip Lowe told a parliamentary committee last Friday that wages remained a big uncertainty in the future outlook. “We’ve got the highest inflation rate in more than 30 years and the lowest unemployment rate in 50 years, and the second-highest terms of trade in 100 years,” Dr Lowe said. At the moment, wage outcomes were not inconsistent with inflation returning to target in a fairly painless way. “Let’s hope it stays that way,” Dr Lowe said.
For business groups, the lesson from the December wage growth figures is that the private sector was delivering the strongest wage growth in a decade before the government’s workplace relations changes came into effect. They are right to say that to sustain strong wage growth it will be necessary to lift productivity so higher wages do not simply feed into higher inflation. The government’s IR changes make predicting what will happen to wages more complicated. With inflation still high, it is natural that pressure for further wage increases will continue to build. The government has made getting wages moving again a key indicator of its performance. But there is still a delicate balance for the Reserve Bank, which must continue to watch closely for signs of things getting out of control.