Finance Wages grow less than half inflation rate
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Wages grow less than half inflation rate

Key data shows wages lagging as inflation surges

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Australian wages are growing at their fastest pace since 2018, but are still lagging well behind the rate of inflation.

The Australian Bureau of Statistics said its wage price index rose 0.7 per cent in the March quarter, which was smaller than economists had been expecting.

The data – used by the Reserve Bank of Australia and Treasury to assess wages growth – showed the annual rate was 2.4 per cent. That is less than half the rate of inflation at 5.1 per cent.

Still, ABS head of prices statistics Michelle Marquardt said the annual rate of wage growth had risen for each of the past five quarters from a low point of 1.4 per cent in the December quarter of 2020.

There is likely to be further bad news for borrowers when the RBA holds its monthly board meeting in June. Economists are expecting at least a further 25 basis point increase in the cash rate.

It follows the first increase in a decade earlier this month as the central bank tries to bring inflation under control.

Cost of living pressures have dominated the six-week federal election campaign which draws to a close on Saturday.

Prime Minister Scott Morrison concedes inflation is a challenge, but is optimistic wages are going up because unemployment is coming down.

“Unemployment has fallen to 4 per cent in this country,” he said in Melbourne on Wednesday, ahead of the ABS data release.

April labour force figures will be released on Thursday. Economists expect them to show unemployment has fallen even further to 3.9 per cent, its lowest level since 1974.

Ballooning inflation and an expected rapid rise in interest rates is likely to take the edge off economic activity this year.

The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, fell to 0.88 per cent in April from 1.69 per cent.

However, at an index above zero, it still indicates the economy will grow above its long term trend rate of around 2.8 per cent.

Westpac chief economist Bill Evans said his bank had recently revised down its growth forecast for 2022 from 5.5 per cent to 4.5 per cent.

“That reflected the sharp increase in the cost of living as headline inflation lifted by 5.1 per cent in the year to March … and an earlier and more rapid policy tightening from the RBA,” Mr Evans said.

“That said, near term prospects are still positive.”

– AAP