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Are you in for a wage increase?

  • May 11 2021
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Earn

Are you in for a wage increase?

By Maja Garaca Djurdjevic
May 11 2021

According to the RBA, you might be in for a wage increase in the coming months.

wage increase

Are you in for a wage increase?

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  • May 11 2021
  • Share

According to the RBA, you might be in for a wage increase in the coming months.

wage increase

The Reserve Bank of Australia believes temporary wage cuts are being unwound, with more firms said to be expecting stronger wages growth in the year ahead.

In its latest economic update, the RBA noted that its “business liaison program” indicates that while wage freezes remain fairly widespread across industries, the near-term outlook has strengthened “a little”.

“Consistent with this, more firms also report expecting stronger wages growth in the year ahead,” the bank said.

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The RBA, however, admitted that despite the likelihood that wages growth may be past its recent trough, overall wages growth is still expected to remain subdued.  

Growth in the wage price index increased to 0.6 per cent in the December quarter, but year-ended growth remained subdued at 1.4 per cent. 

Private sector wages increased by 0.7 per cent, primarily reflecting the reversal of a number of large temporary wage cuts implemented in the June and September quarters, while public sector wages rose by 0.3 per cent in the quarter, as wage freezes across the sector continued to weigh on outcomes.

“Information from the bank’s business liaison program indicates that average wages growth has been below 3 per cent for the majority of firms in recent years,” the RBA said.

“This pattern appears to have remained in place in 2021 to date, and stands in contrast to outcomes over much of the previous two decades, when a large share of firms reported average wage increases of more than 3 per cent,” the bank noted.

In his pre-budget rebuttal, Opposition Leader Anthony Albanese criticised the government for its lack of “substantial economic reform”, including a plan to deal with stagnant wages.

In the days leading up to tonight’s budget reveal, Treasurer Josh Frydenberg did emphasise the importance of jobs and wage growth as Australia looks to rebuild from its first recession in three decades.

However, no clear plan has been provided, with the Treasurer conceding that in order to lift wages, “the unemployment rate will have to have a 4 in front of it”.

Similarly, inflation is expected to remain stagnant until the unemployment rate drops, with the RBA admitting that low wages growth continued to contribute to subdued inflationary pressures in the first quarter.

As such, short-term inflation expectations remain relatively subdued.

Late last month, CPI data from the Australian Bureau of Statistics squashed rumours of an earlier than predicted interest rate rise.

The ABS reported that headline inflation rose just 0.6 per cent over the March quarter to 1.1 per cent annually, well down on the 0.9 per cent rate recorded over the December quarter and the second consecutive fall in the series.

“Speculation that the likelihood of rising March quarter inflation data would signal the prospect of interest rate rises has predictably once again fallen well wide of the mark,” Dr Andrew Wilson, chief economist at Archistar, said at the time.

At its last board meeting, the RBA reaffirmed that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

“For this to occur, wages growth would need to be materially higher than it is currently. This would require significant gains in employment and a return to a tight labour market. The board does not expect these conditions to be met until 2024 at the earliest,” it said. 

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About the author

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Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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