Could Record Low Pay Rises be Coming to an End?

The latest Australian Bureau of Statistics figures on private sector wage growth show the lows continue, with the average hovering around 1.8%, a new record. But the big question is: has the bottom of the cycle been reached?

In the same week these figures were released, the Reserve Bank Governor hinted that maybe it has. Appearing at the House of Representatives Standing Committee on Economics, the Governor indicated that in the Bank’s view, there is a reasonable likelihood that the Australian economy will growth by a respectable 3% over the next year. If that happens, it will prompt demands for larger wage increases and the record low pay rises in the private sector will come to an end.

Tempering those pressures however is the excess capacity in the labour market, including what is being dubbed ‘underemployment’ with a significant increase overall recently in part time work.

The Reserve Bank has already made the point in other public statements that Australia’s inflation is very low. A more rapid rate of economic growth, tipped to occur in 2017-18 in many industrialised economies it the wake of US growth, will see an increase in inflation and hence higher wage demands will likely follow.

Wage Price Index, December Quarter 2016, 6345.0