Treasurer optimistic on real wage growth

The federal government is hopeful wages will continue to grow strongly even as interest rate hikes take the heat out of the economy and stamp down inflation.

Pay packets are growing at the fastest rate in more than a decade as the strong labour market continues to put upwards pressure on wages.

Wages are increasing by about three per cent annually, notably higher than the 2.3 per cent average growth in the past decade.

But sky-high inflation is eroding these gains, with wages contracting at a rapid rate when accounting for the rising cost of living.

Treasurer Jim Chalmers said real wage growth is anticipated next year as inflation moderates and wage growth remains robust.

“The wages growth that we’re seeing in the economy is something that we hope we can sustain and obviously inflation will moderate over time,” he told ABC News on Tuesday.

“So to the extent we can do something meaningful on both sides of the equation, we’ll get real wage growth in our economy.”

However, he said achieving real wage growth relied on unpredictable inflation forecasts.

New Treasury analysis of Australian Bureau of Statistics data found wages for the lowest skilled occupations grew 2.3 per cent in the three months to September but just 1.2 per cent for the most skilled workers.

The industrial umpire’s decision to lift the minimum wage boosted wages in this category for the September quarter.

The December quarter wage price index will be released on February 22.

Workers may be waiting a while for higher real wages but consumers are still feeling optimistic about 2023.

Consumer sentiment lifted in January, with the Westpac-Melbourne Institute index gaining five per cent to 84.3 points in January, from 80.3 points in December.

While it was the largest monthly rise in the index since April 2021, Westpac chief economist Bill Evans said this might be because there was no central bank interest rate rise this month.

Westpac expects the Reserve Bank board to continue with its interest rate policy tightening at its first meeting for the year on February 7.

More broadly, Mr Evans said consumer sentiment was still depressingly low despite the apparent improvement in January.

“The January read is in the bottom 10 per cent of observations since the mid-1970s,” he said.

CBA Economics’ Harry Ottley said sentiment was particularly depressed across indicators that sampled the respondent’s financial health, such as family finances compared to a year ago and time to buy a major household item.

He also said forward-looking components performed better than current conditions.

“This indicates that what the RBA does and says impacts how consumers feel about the future,” Mr Ottley said.

The ANZ-Roy Morgan weekly consumer confidence index released on Tuesday also pointed to subdued sentiment.

 

Poppy Johnston
(Australian Associated Press)

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