Australia’s Wages Grew to Their Highest Rate in a Decade, Albeit Falling Short of Expectations

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Last quarter, Australian wages grew at the most accelerated annual rate in a decade, yet they still lagged behind market expectations. It could lessen any pressure for more intense hikes in interest rates and decrease the local currency’s value.

The Australian Bureau of Statistics released its wage price index data this Wednesday, showing that the nation experienced an increase in wages by 0.8 per cent during the December quarter from the previous quarter – a figure lower than what economists predicted (1.0 per cent).

Last year, salary growth was 3.2 per cent but has risen to 3.3 per cent. Although this is not up to the expectations of a 3.5 per cent increase, policymakers can take solace in the fact that high inflationary pressures are less likely to create an adverse price-wage cycle for individuals and businesses.

Investors had anticipated an upside surprise; consequently, the Australian dollar dropped to $0.6847. Futures covered up the likely maximum peak for interest rates after this adjustment was made.

The Reserve Bank of Australia (RBA) has increased interest rates by 325 basis points, the highest level in 10 years at 3.35 per cent. It was done in response to inflation surging past 20 years highs, reaching 7.8 per cent towards the end of last year.

Following the wage news, markets adjusted their expectations for interest rates to peak at 4.1 per cent, down from an initial wager of 4.35 per cent.

Policymakers worry that wages will rise in line with prices and contribute to additional price pressures. The Reserve Bank of Australia predicted wage growth for the last quarter to be 3.5 per cent, so the outcome is likely more favourable than anticipated.

Marcel Thieliant, the head of Asia Pacific economics at Capital Economics, declared, “Wage growth was weaker than the RBA had expected last quarter, and we think it won’t accelerate as rapidly as the RBA anticipates.” 

As we expect the labour market to loosen more rapidly than the Bank anticipates, we think it will peak at just under 4 per cent instead of the RBA’s forecast of 4.2 per cent,” he added. 

Business surveys showed that pay deals have increased as unemployment nears 50-year lows, with the RBA reporting that one-third of firms had written more than a 5 per cent salary increment. According to ABS data, private sector wages saw an annual rise of 3.6 per cent in the December quarter, while the public sector lagged at 2.5 per cent.

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