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Wages growth remains at a record low 1.9 per cent, and with only a gradual improvement expected in the coming months economists are forecasting no moves in interest rates for some time.

Total hourly rates of pay, excluding bonuses, rose 0.5 per cent in the June quarter, matching market expectations and keeping the annual rate of wages growth at 1.9 per cent for a fourth consecutive quarter, according to the latest Australian Bureau of Statistics Wage Price Index.

The wage price index measures movement in underlying wages by calculating the change in wage and salary costs across a range of occupations.

ABS chief economist Bruce Hockman said underemployment - those people in work but wanting more hours - was weighing on pay.

"The low wages growth reflects, in part, ongoing space capacity in the labour market," he said.

"Underemployment, in particular, is an indicator of labour market spare capacity and a key contributor to ongoing low wages growth."

RBC Capital Markets strategist Su-Lin Ong said the recent pace of employment growth will help to erode some of the excess capacity, and the increase in the minimum wage on July 1 will also boost wages growth.

"The RBA will be hopeful that this, coupled with continued employment gains, will eventually lift core inflation back into the target range," Ms Ong said.

"Given a number of headwinds and the global wage and inflation dynamics we are more cautious."

Commonwealth Bank economist Kristian Clifton said a slow rise in wages growth will only put gradual pressure on inflation.

"This means that the RBA will be no hurry to raise interest rates, particularly in an environment where there are still a number of headwinds for consumers to contend with, including higher electricity costs and high household debt levels," she said.

The public sector wage index rose 0.6 per cent in the June quarter, while the private sector rose 0.4 per cent.

In the year to June, private sector wages grew 1.8 per cent, while wages in the public sector rose 2.4 per cent.

 

By Simone Ziaziaris
 
Position Partner – 300x 600 (engineering – expire July 31 2018)
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