(Bloomberg) -- Australia’s elevated wage growth and improved consumer confidence after a fiscal injection highlight price pressures in the economy and reinforce the Reserve Bank’s view that interest-rate cuts remain some way off.
The Wage Price Index rose an annual 4.1% in the three months through June, matching its first quarter reading, according to government data on Tuesday. Separate private surveys showed consumer sentiment rose 2.8% in August and business conditions advanced in July, highlighting a resilient corporate sector.
The releases point to a still-tight labor market that is supporting wages growth, while tax cuts and energy rebates are bolstering household finances and potentially fueling demand. Neither will aid the RBA in its efforts to rein in inflation and help explain why it sees little prospect of policy easing this year.
“There is little new trend in today’s suite of data to sway the RBA’s stance,” said My Bui, economist at AMP Ltd. “But the RBA also needs to look forward and not backward. Private sector wages have softened, leading indicators all point to a weaker employment backdrop, inflation pressures continue to normalize, household purchase intentions are still very negative.”
The central bank held borrowing costs at a 12-year high of 4.35% last week and meets again next month, with money markets and economists certain that its next move will be a rate cut. They’re divided on the timing, however, with traders seeing a first reduction in December while economists’ consensus shows easing will only begin in 2025.
Governor Michele Bullock “has all but ruled out rate cuts in the short term, and the flow of data between now and the next meeting will not add much new information about the inflation pulse,” said Matthew Hassan, a senior economist at Westpac Banking Corp., which released the consumer confidence report.
“Given this, it seems likely that the board will hold the cash rate unchanged.”
Attention now shifts to July’s employment data on Thursday with economists predicting the jobless rate held steady at 4.1%. On Friday, Bullock appears before a parliamentary panel where she will be grilled on policy and the economy.
National Australia Bank Ltd.’s business survey showed growth in labor costs accelerated, reflecting increases in award and minimum wages. That’s a worrying sign for the RBA which has voiced the need for vigilance on upside price risks.
Third-quarter wages data will be published on Nov. 13, before the RBA’s final board meeting of the year.
Policymakers have previously said wage growth of around 4% is consistent with the central bank’s 2-3% inflation target, provided the economy’s productivity performance improves. Yet they’ve been sounding more concerned on that front recently as there has been little sign of a return to solid productivity gains.
“Perhaps the biggest risk to Australia’s outlook for inflation and monetary policy remains the disconnect between wage growth and productivity growth,” said Callam Pickering, a senior economist at global job side Indeed Inc. “It may not stop inflation returning to the RBA’s inflation target but it will be pivotal to determining whether inflation stays there.”
Today’s reports also showed:
- Public sector wages grew 0.9%, outpacing private on a quarterly basis
- NAB’s survey showed its employment gauge jumped to 7 points from 0
- Westpac’s report showed the family finances vs a year ago sub-index surged 11.7% in August, the biggest monthly gain in nine years
- Its family finances, next 12 months sub-index rose 5.1% to 96.8, the highest level since the rate tightening cycle began in May 2022
- The time to buy a major item sub-index edged up 0.6% to 82.6
(Adds wages data, economist comment.)
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