Australian wages are growing more slowly than ever

Peter Terlato 19 October 2016

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Excess capacity, lower commodity prices and reduced pricing power are to blame.

The Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS) report that the wage price index (WPI) has risen by just over 2% in the past year, the slowest rate of increase since the late 1990s.

In a speech addressing inflation and monetary policy at Citi's 8th Annual Australian & New Zealand Investment Conference, RBA governor Philip Lowe revealed that in recent years there has been a notable decline in the frequency of wage increases across Australia.

The RBA and the ABS found that when there were instances of wage increases, the average size of these rises kept reducing over time.

For example, in 2010, almost 40% of the 18,000 jobs monitored by the ABS received a wage hike of more than 4%.

Comparatively, in the past year, the proportion of jobs receiving the same rate rise had shrunk to less than 10%. Almost half of the jobs tracked incurred wage increases of between 2-3%.

Lowe said excess capacity, lower commodity prices and reduced pricing power were to blame for the WPI slowdown.

While downward pressure on wages is expected to continue for a while yet, the drag on Australia's economy from the decline in mining investment is coming to an end.

"As this happens, the excess capacity, including in the labour market, is likely to be wound back. Some pick-up in wages and prices could then be expected," Lowe said.

However, Lowe argued that the RBA wouldn't be quick to cut rates merely to push inflation back within the bank's 2-3% target band.

Earlier this year the Australian Institute of Management (AIM) released the results of its national salary survey, revealing the rate of decline for wage growth is following the same downtrend trend as inflation, raising the prospect of further falls in the year ahead.

Despite the stagnant growth of wages, some industries still enjoy substantial annual salary increases. Energy management services workers and those employed in education and training earned the greatest annual wage gains in 2015/16.

Looking for a little extra cash? Empty out the garage! The average Australian household has $5,200 in unwanted goods which could be sold second-hand to generate additional income.

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