Australia’s wage growth likely to have picked up in Q2

The second quarter data is likely to give some proof that wage growth in Australia is bottoming out. Wage growth, on a quarter-on-quarter basis, is likely to have risen to 0.6 percent from 0.4 percent. The year-on-year rate is likely to have remained stable at record low of 2.1 percent, said Societe Generale in a research report.

The possibility of slightly firmer wage growth is because unemployment has eased by 0.5 percentage point since the beginning of 2015 and that the overall competitive pressures on business have also alleviated due to the weaker exchange rate; but not for all businesses, depending on their external/domestic cost/revenue mix, stated Societe Generale.

This might still imply that wage cost pressures are unusually controlled given the level of labor market slack; however, it would be in line with a recovery. A rise in the wage index series that includes bonus payments signal that this rebound might already have started in the first quarter.

Low nominal wage growth is not declining the real purchasing power. Inflation has slowed more rapidly than wage growth in the last two years, and if nominal wage growth would have stayed at 2.1 percent year-on-year, inflation-adjusted wages would have quickened further to 1.1 percent year-on-year from 0.8 percent in first quarter, noted Societe Generale.

“Added to employment growth of around 2%, and real wages and salaries are growing at a healthy rate of around 3%,” added Societe Generale.