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Aussies have been fortunate to have some much-needed relief through the beginning of 2025.
The RBA finally cut interest rates for the first time in over four years, people started to spend again after inflation dropped, and business turnover climbed.
However, wage growth appears to be taking a hit amid the positive news. As revealed by the Australia Bureau of Statistics (ABS), wages grew by 0.7 per cent over the December quarter. This is reportedly the lowest growth since March 2022.
Despite the disappointment of subdued wage growth, Indeed’s APAC economist Callam Pickering said it will help contain inflation.
“Wage growth continues to moderate, with quarterly gains the lowest in almost three years. Softer wage growth will help contain inflation, particularly given Australia’s abysmal productivity growth, but it’s hardly what households want to hear,” he said.
“Adjusted for inflation, Australian wages are still 6 per cent below their peak and, based on the latest wage and inflation forecasts from the RBA, that won’t improve at all in the next two years. It highlights just how damaging high inflation can be and how long the recovery will be.”
After the release of this data, ANZ has come forward and predicted just one more cash rate cut in 2025. The major believes the Reserve Bank will cut by another 25 bps in August to bring the cash rate to 3.85 per cent.
Further, Pickering said that trouble with productivity could further impact the RBA’s future decisions. The ABS has recorded a steady drop in productivity since 2003.
The latest statistics, as of 2023, saw the 20-year average annual growth rate of productivity at 0.9 per cent, half of what it was in 2003 at 1.8 per cent.
“There continues to be a bit of a disconnect between wage growth and productivity growth that may prove problematic for inflation and monetary policy going forward. Despite easing, annual wage growth remains too high given Australia’s abysmal productivity performance recently. That’s unsustainable and ideally, we’d like to see productivity growth improve significantly to support stronger wage growth going forward,” Pickering said.
Despite the poor December quarter wage performance, the annual rise was 3.2 per cent. Being within the RBA’s predictions, we could see further rate cuts throughout 2025.
“While the quarterly result was a touch weaker than market expectations, annual growth was bang on the RBA’s latest forecasts released this week. As such you wouldn’t expect the latest wage growth data to impact the RBA’s thinking going forward,” said Pickering.
“We believe that the RBA will likely deliver a second rate cut in either May or July, probably the former given it coincides with the publication of the quarterly Statement on Monetary Policy. However, another cut is by no means certain and the RBA will take a cautious approach given inflation will spike when government subsidies expire this year, as well as the ongoing productivity issues.”
[Related: Consumer confidence dropped in build-up to rate cuts]
