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The outlook for wages in 2019, and what likely tax cuts mean for interest rates

Deloitte

The pace of wages growth is increasing slowly in Australia, against a backdrop of weak quarterly inflation data.  

Last week’s consumer price inflation data reported zero price growth in the March 2019 quarter, with the annual inflation rate falling to a low 1.3 per cent. This was 0.7 per cent lower than the minimum 2 per cent growth that the RBA aims for yearly.

This aligns with the comments of Deloitte Access Economics’ Chris Richardson prior to the federal budget’s release, which is that a budget surplus is not necessarily a sign of a thriving economy.

“The economy is getting better, but the budget is getting worse,” he said.

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There were some wins in the figures for consumers, though, as the price of oil, electricity and the building costs of new homes all fell.

However, the drought in Australia is continuing to drive up vegetable prices, compounded by education and health prices also increasing in the March quarter.

The overall unemployment rate remains low at 5 per cent, and employment growth remains well above growth in the working-age population.  

Further, while weak inflation data has shifted market expectations towards a rate cut on Tuesday, 7 May, the prospect of lower tax rates later in the year might sway the RBA’s decision towards waiting.

Both sides of government have announced a spate of tax sweeteners in the lead up to the federal election. You can read more about Labor’s plans here and Liberal’s plans here.

The official cash rate has been on hold for about two and a half years, and during that time, out-of-cycle rate hikes and drops have become a market expectation. You can read more about that here.

The outlook for wages in 2019, and what likely tax cuts mean for interest rates
Deloitte
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