Australian wage rises in EBAs rise in Q4 2017, wage inflation likely to pick-up very gradually

Average wage rises in Australian enterprise bargaining agreements rose to 2.5 percent in the December quarter following a surprisingly sharp deceleration in the prior quarter. While this is just off the lows recorded in the third quarter, it is line with other measures of wages growth, which look to have troughed, noted ANZ in a research report.

The rebound in the fourth quarter was widespread throughout industries, with the construction, rental, hiring & real estate, and retail trade industries showing the biggest rebounds. The rebound was clear in both the public and private sectors, with private AAWI rising from 2.4 percent in the third quarter to 2.6 percent in the fourth quarter, and public AWWI up from 2 percent to 2.3 percent.

Cutting the data a number of different ways also implies that upward wage pressures is becoming more broad-based. The EBA data indicated that 57 percent of industries achieved wage gains above 2.5 percent in the fourth quarter, up from a low of 33 percent in the prior quarter. The RBA is seeing a similar pattern in its business liaison, noting in the May’s Monetary Policy Statement that “there has been a pick-up in the share of firms indicating wages growth outcomes in excess of 3 percent.

The rebound in EBA wage gains is important given that it is essentially a leading indicator of actual wage growth. The agreements are generally around three years, so the wage rises granted in the fourth quarter would be effective for the next three years.

For the RBA, the EBA data are likely to increase sentiment that wages growth is finally picking up. The rebound in wage growth outcomes in the fourth quarter data is in line with a number of other wages measures that have troughed. However, given the large amount of spare capacity still in the labor market, only a very gradual pick-up in wage inflation is expected, added ANZ.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was neutral at -42.6107, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 3.8485. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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