Australia Q2 wage growth softer than expected, adds to rate pause case By Reuters

© Reuters. FILE PHOTO: Workers carry barriers as they wait to cross a street at a set of traffic lights with pedestrians at sunset in central Newcastle, located north of Sydney, Australia, August 13, 2018. REUTERS/David Gray/File Photo

By Stella Qiu

SYDNEY (Reuters) – Australian wage growth held steady in the last quarter, while annual pay increases eased slightly from decade-high levels, just below forecasts, adding to the rate pause case for the time being.

Figures from the Australian Bureau of Statistics out on Tuesday showed its wage price index rose 0.8% in the June quarter from the previous quarter, against forecasts of a 0.9% increase.

Annual pay growth eased a little to 3.6% from 3.7% the previous quarter, the highest since September quarter 2012. That compared with forecasts of 3.7%.

Coupled with the release of dovish minutes from July policy meeting, investors doubled down on bets that the Reserve Bank of Australia (RBA) would keep rates steady for a third straight month in September with a 91% probability, compared with 85% before the data.

The Australian dollar hit a session low of $0.6463 before recovering some of its posture and stabilising at $0.6486, while three-year bond futures pared earlier losses to be down just 2 ticks at 96.07.

“Wage growth has been stuck at 0.8% q/q for the past three quarters – a somewhat surprisingly slow pace given the very low level of the unemployment rate,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

“We do not think these data alone will spur the RBA into another rate hike in September. However, the outlook for unit labour costs remains concerning given the recent weak trend in productivity growth.”

Indeed, the risk is wages in the third quarter could spike higher after a large mandated increase in the minimum and award wages, prompting one last rate hike from the RBA by the end of the year. Currently, investors put that chance at above 50%.

The RBA now sees a credible path where inflation could be restrained with interest rates at their current level, suggesting the bar to more tightening could be high, minutes showed on Tuesday.

The central bank has already hiked interest rates a hefty 400 basis points to 4.1% since May last year, though it did pause in July and August to assess whether inflation was heading lower as desired after peaking at 7.8% late last year.

The ABS data showed wages in the public sector picked up to an annual rise of 3.1% while growth in private sector wages increased 3.8%.

The RBA forecast annual wage growth to peak at 4.1% by the end of the year, before easing back to 3.6% by end-2025.

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