RBA – Wages Increases Stagnant

New figures out confirm the prolonged stagnation in the size of wage increases has not abated. In its most recent Statement on Monetary Policy, the Reserve Bank of Australia (RBA) cites low inflation as a prime influencing factor in creating this situation. The RBA makes the point too that wage increases are “an important determinant of inflation”, indicating that labour costs make-up roughly half of final prices for market services.

The headline inflation rate of 1.3% is low when compared with the RBA’s own guideline target range of 2-3%, and this is clearly influencing not just wage outcomes, but the behaviour of employers and employees generally in the bargaining arena.

Put simply, expectations are lower compared to earlier times, and while unemployment is steady and not particularly high, it is acting partly as a brake on people’s expectations. But the RBA also highlights sectors where prices have either stabilised or fallen, and much of that has offset any price inflation caused by the falling value of the Australian dollar.

The value of the RBA analysis to an employer in a bargaining round is it gives them support if there is pressure to increase wages substantially without any genuine productivity trade-offs.

Reserve Bank of Australia – Statement on Monetary Policy (November 2016)