Chief economist update: Stuck in the very slow lane

Now we know. Growth in Australian wages remained stuck cruising at a low altitude of 2.1% in the March 2018 quarter, unchanged from the previous quarter and the quarter before that.

Take these annual growth rates to two decimal places and we find that wages eased to 2.07% in the March 2018 quarter from 2.08% in the December 2017 quarter and 2.09% in the September quarter.

Normally, I wouldn't quibble about decimal points but RBA deputy governor Guy Debelle's recent statement at the CFO Forum held in Sydney yesterday, quipped that "Recent data on wages provides some assurance that wages growth has troughed."

For sure wages growth may have troughed from the record slow rates of 1.9% in the September 2016 quarter to the June 2017 quarter, but the recent figures (up to two decimal places) also changes my metaphor from "cruising at a low altitude" to "slight descent" (barely noticeable perhaps but still a descent).

The breakdown in the Wage Price Index report showed private sector wages growth slowed from 1.93% to 1.92% in the March quarter but public sector wages slowed by more - from 2.44% to 2.35%.

Lacklustre wages growth would continue to dampen household spending that's already saddled with record high levels of debt.

The good news is that, my back of the envelope calculations show that the wage price index has to grow by 0.18% in the June quarter (1.68% year-on-year) to match the Budget 2018/19 forecast of 2.25% growth.

The tax cuts embedded in the Budget should also provide some tailwind behind household consumption and so too would the RBA's accommodative policy stance.

Reading between the lines of Debelle's speech, the RBA won't raise interest rates until wages and household income grow faster than they have in recent times.

"How much longer is wages growth going to remain at its current low rates?" (Guy Debelle)

Read more: BudgetGuy DebelleWage Price IndexCFO ForumSydney
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