Australia’s wage growth slows in Q3, likely to remain subdued for some time

Wage growth in Australia continues to fall. It stepped down in the third quarter after a period of stabilization, noted ANZ in a research report. The wage price index, excluding bonuses increased just 0.4 percent sequentially in the September and rose only 1.9 percent on a year-on-year basis. Annual growth in the wage price index including bonuses also stepped down to 1.7 percent, a record low.

Private sector wage growth, which fell to 0.4 percent quarter-on-quarter, mainly drove the overall weakness. Private sector wage growth had stabilized for quite some time where wages rose 0.5 percent for six consecutive quarters. Public sector wage growth came in a tad higher than private wage growth. It grew 0.6 percent sequentially and 2.3 percent year-on-year in the third quarter.

The overall deceleration in wage growth continues to be widespread throughout industries and states. Growth in private sector wage is the slowest in the mining states of Western Australia and Queensland at 1.5 percent and 1.8 percent year-on-year, respectively, said ANZ. Meanwhile, mining sector wage growth has slowed to 1 percent year-on-year after peaking 6.7 percent in June 2008.

The wage growth figures released today would be disappointing for the RBA. The slowdown in wage growth shows that the disinflationary pressures from the labor market would keep on affecting consumer price inflation and implies that the expected rebound in inflation might be further away than forecast.

Wage growth in Australia is expected to stay subdued over the next year or so, according to ANZ. There continues to be significant spare capacity in the Australian labor market with the labor underutilization rate remaining high when compared with history. Furthermore, employees are not expected to demand higher pay increases when inflation expectations continue to be low and workers remain concerned about unemployment, added ANZ.

The AUD/USD currency pair is trading at 0.7540 at the press time. Meanwhile, at 06.00 GMT, the FxWirePro’s Hourly Australian Dollar Strength Index stood slightly bearish at -57.6582.

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