Further confirmation of Australia’s wages growth crisis has fuelled the likelihood of at least one, but probably two, interest rate cuts in 2019.
And, more worryingly, the latest figures may be even worse than they first appear.
Wage growth data released by the Australian Bureau of Statistics (ABS) on Wednesday showed wages grew by 0.5 per cent in the March quarter, and an unspectacular 2.3 per cent in the year to March.
The 0.5 per cent figure was identical to that from December, was the third consecutive quarter of stagnant growth, and was below the widely expected figure of 0.6 per cent.
The figures have come soon after data showing 0 per cent inflation in the March quarter, and a disconcerting 1.3 per cent for the year to March – virtually half the inflation band of 2 to 3 per cent that the Reserve Bank is aiming for.
The release comes on the eve of jobs data that appears central to whether the Reserve Bank (RBA) will cut the cash rate for the first time since August 2016 to jump-start stagnant economic growth.
The consensus among economists appeared to be that while the figures did not herald any kind of economic disaster, they certainly added fuel to the fire for the RBA to cut rates twice in 2019, to an all-time low of 1 per cent.
But one economist said Wednesday’s figures were camouflaging far worse news for Australian workers.
Dr Jim Stanford, from the Centre for Future Work, said without the hefty boost from the 3.5 per cent increase to the minimum wage last July, the 2.3 per cent figure would be significantly worse. (And that 3.5 per cent came after a 3.3 per cent hike in July 2017.)
“It’s [the 2.3 per cent increase] a bit of an uptick from the very low levels of a couple of years ago [just below 2 per cent], but still very low and below the target rate of inflation [of 2.5 per cent] and well below the 3.5 per cent which the Reserve Bank wants to see,” Dr Stamford said.
“Whatever growth we have seen over the past year, it’s pretty much due to the 3.5 per cent increase in the minimum wage, which is gradually working its way through the system.
“Without that minimum wage increase, wages would still be very low indeed. We’d be seeing a wage growth figure of more like 2 per cent.”
But that figure needs to be about 3.5 per cent, Dr Stamford said.
Australia’s traditional annual growth of about 4 per cent a year, but since 2013 that has slowed to about 2 per cent a year, and in 2017 it slumped to 1.7 per cent, according to research by the Centre for Future Work using tax data as the basis of its analysis.
“We are teetering on the edge of falling into deflation, which is a disaster for any economy. To correct that, we need more job creation and higher wages, and neither of those is happening.”
Dr Stamford said the prospect for future wage growth will depend heavily on what the Fair Work Commission determines as the increase to minimum wages this year.
While some business groups want a zero increase, and the Australian Chamber of Commerce is calling for just 1.8 per cent, the Australian Council of Trade Unions is demanding a 6 per cent hike.
The ACTU have made a submission to the Fair Work Commission asking for a 6% raise to the minimum wage.We should not have workers living in poverty in this country!
— Unions NSW (@unionsnsw) May 15, 2019
All eyes on employment figures
AMP Capital senior economist Diana Mousina told The New Daily the latest figures and the prospect of a spike in unemployment firm up AMP’s expectation of a rates cut in June and one in the second half of 2019.
With pressure on the housing and construction sectors, AMP has forecast unemployment to peak at 5.5 per cent in the third or fourth quarter of 2019 – well up from the current 5 per cent.
That equates to the loss of 55,000 to 60,000 jobs, she said.
“That’s not that dire for the Australian economy, but it will see employment growth slow to about 2 per cent over the next 12 months, which is down from the 3.4 per cent in 2017 and 2.2 per cent in 2018,” Ms Mousina said.
AAP reported that economists expect the jobless rate to rise to 5.1 per cent and about 15,000 new jobs created in the month of April, when labour force data is released on Thursday (May 16).