Wage growth slows to a record low

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(Australian Associated Press)

Wage growth slowed to its weakest level on record in 2016, weighed down by the private sector.

Total hourly rates of pay, excluding bonuses, rose 0.5 per cent in the December quarter, taking the annual rate to 1.9 per cent, according to the latest Australian Bureau of Statistics Wage Price Index.

That is the lowest annual rate growth since records began in 1998.

Capital Economics chief economist Paul Dales said the primary issue was private sector wages, which rose by only 0.4 per cent for the second consecutive quarter in the three months to December, taking the annual rate to just 1.8 per cent.

“This is important as private wage growth is a better gauge of the cyclical influence and it appears the economy is simply not strong enough to boost wage growth,” Mr Dales said.

The wage figures will be a blow to Reserve Bank governor Philip Lowe, who said in a speech on Wednesday morning, before the numbers were released, that wage growth “is not expected to decline further”.

Westpac economists said it was unlikely that weaker core inflation in recent quarters had affected inflation expectations and weighed on wage growth.

“Decelerating wage inflation has been present since 2012 and this would also be a remarkably quick reaction to recent inflation prints considering core inflation only fell below the target band in 2016,” they said in a note.

“However, low inflationary pressures in the goods market have partially cushioned the negative effect of very low nominal wage growth on household purchasing power.”

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