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  • Writer's pictureFlow Australia

Tight jobs market expected to drive strong wages growth

The latest wage price index is expected to reveal a further acceleration in pay packets, which could have an impact on interest rate hikes.

The competitive jobs market has been delivering solid pay rises but a larger-than-expected wage lift could throw the Reserve Bank off its interest rate course.

The March quarter wage price index, scheduled for release on Wednesday, will likely reveal a further acceleration in pay packets driven by the tight labour market.

NAB and Commonwealth Bank economists predict 0.9 per cent quarterly wage growth and for the index to be up 3.6 per cent on the year.

The index lifted 3.3 per cent in the final three months of 2022.

NAB economist Taylor Nugent said the wage report would contain some clues for the Reserve Bank and its inflation-taming strategy.

Compared to other central banks, the RBA is content to tolerate a slower turn to target - inflation hitting three per cent by mid-2025 - in the hopes of keeping as many people in jobs as possible.

Mr Nugent said if wages jumped higher than expected - lifting more than one per cent over the quarter - it could signal more persistent inflation and ramp up the chance of more rate hikes.

The RBA is comfortable with wage growth between 3.5 and four per cent.

"Also important on the wages front is the upcoming minimum/award wage decision, due anytime from late May to early June," Mr Nugent said.

For workers, wage increases have been welcome but salary boosts have been outpaced by fast-rising consumer prices.

Pay rises are likely to make gains on inflation , but a real lift in wages is not expected until early next year.

Squeezed real wages are starting to weigh on consumer spending, with CommBank research revealing the cohorts hurting most. 

The research, based on de-identified payment data from the bank, found Australians aged 30-34 and renters were under the most pressure from the rising cost of living.

Younger people were pulling back on spending more than older Australians with those aged between 25-29 contracting spending the most. 

Meanwhile, the Fair Work Commission is due to hold a meeting with government, union and employer groups on its annual wage review.


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