Wage rises will flatten, central bank warns

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November 11 2019
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The Reserve Bank of Australia has abandoned its expectation for any pick-up in wage growth over the foreseeable future and said inflation will not reach the bottom of its target of 2 to 3 per cent until 2022 at the earliest.

In its downgrade of the full-year economic growth forecast for 2019, the Reserve Bank has trimmed its growth forecast for the 12 months to December by 0.25 of a percentage point to 2.25 per cent and also downgraded its June 2020 forecast to 2.5 per cent from the 2.75 per cent earlier flagged.

While the downgrades were minor, they showed the Australian economy might not have found the green shoots previously predicted.

“Wages growth is expected to remain around the current rate over the next couple of years,” the RBA’s statement read.

The Reserve Bank’s assessment of the economy matches expectations of unions and employee groups who are forecasting lean times for employees.

“The majority of companies in the liaison program as well as surveyed unions continue to anticipate little change in wages growth over the next year,” the RBA reported.

The statement highlighted weaker growth in the private sector in particular, with a gradual trend towards full employment.

“Private sector wage price index (WPI) growth is expected to increase very modestly, consistent with the gradual decline in labour market spare capacity. This is a little lower than previously forecast,” the RBA continued.

It conceded that the public sector will also struggle for real wage growth due to wage caps, with growth expected to “remain broadly stable over the next few years” with no indication of any changes to wage caps in place in most jurisdictions for many years.

There will be a boost to wages growth in the September 2020 quarter, the RBA did indicate, that will be spurred on by the 3 per cent increase in the award and minimum wage.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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