Tough times ahead with wage growth at record lows

by Julia Corderoy15 Aug 2014
The cost of living is about to get tougher, with official figures showing Australia’s wage growth is at record lows. 

In the quarter to June 2014, wages rose by just 0.6%, according to the Australian Bureau of Statistic’s wage price index. In the year to June, the wage price index rose by a meagre 2.6% - well below the inflation rate of 3%.

RBC Capital Markets fixed interest strategist Michael Turner told News Ltd that weaker employment was to blame for the sluggish growth. The latest employment figures released by the ABS saw the unemployment rate hit 6.4%, the highest it has been since 2002.

“The continued historically slow pace of wage inflation was likely to shock no one given rising unemployment, improving productivity and weak growth in domestic income,” he said.

CommSec chief economist Craig James told News Ltd that wages were not keeping up with price rises, but low wage costs could help boost employment growth.

“Modest wage growth and higher productivity should support the hiring intentions of employers.

“While strong growth in wages would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide inflationary pressures.” 

The sluggish growth in wages coupled with high unemployment rates could mean the RBA will keep the cash rate on hold at the record low of 2.5% for the remainder of the year, at least. Although, whether or not low interest rates will offset the impact of low wages and high unemployment on the cost of living for Australian families remains to be seen.