Australian labor costs growth likely bottomed, may rebound slightly in 2017 - ANZ

The ANZ wage gauge, which is a survey-based measure of Australia’s wage costs rose in April. The rise in the gauge was driven by a rebound in the companies’ component – as Australian businesses appear to expect marginally higher wages in the future. The households’ component was a bit lower, partly countering the overall strength, on the back of some deterioration in households’ expectations around their finances.

Both the firms’ and households’ expectations continue to be well below their long run averages. Commodity prices continue to be the only positive contributor to the gauge, noted ANZ. However, after peaking in January, the contribution from the commodity price component has been steadily falling.

The ANZ wage gauge implies that Australian labor cost growth has bottomed and might rebound slightly this year. The first quarter wage price index was in line with this suggestion, with a modest acceleration in wages on a quarterly change basis – though overall the WPI has lagged the signal from the wage gauge.

“A strong acceleration in wages remains unlikely, however, given ongoing slack in the labour market (even after the recent decline in the unemployment rate), low inflation expectations and worker concerns about job security. This is one of the reasons why we see the RBA on hold for the foreseeable future”, added ANZ.