Daily Commentary BY THE CURVE TEAM –

Wage Growth Concerns Justified

17th of August, 2017

The RBA’s concerns over lacklustre wage growth were given further justification yesterday as the latest wage growth figures confirm the ongoing weakness in wage growth. The global phenomena of low wages and its implications for inflation is on the fore front for central banks as the FOMC suggests there is growing unease about the outlook for inflation.

The annual pace of private wage growth edged down to a new low for the series dating back to the mid 1990’s after a quarterly gain of 0.5%. The increase was right in line with expectations with growth in wages now being steady for the past few quarters, which is hopefully a sign that the annual pace of growth is bottoming.

The headline wage growth should receive a small boost next quarter as the minimum wage decision that kicked in on July 1 should add to the quarterly increase for the current quarter. The RBA hopes the increase in the minimum wage will filter through to the broader market however it is too early to tell if that will actually materialise.

Worries over wages and inflation appear to be driving a greater division among FOMC members, which could have implications for the next rate hike. That was one of the key messages from the minutes from the FOMC’s most recent meeting, which were released overnight. While those growing concerns over wages and inflation could prompt a longer pause before hiking again, balance sheet tapering is coming and coming soon. September is likely but it’s no certainty as the FOMC has been spooked more than once so far in this monetary policy normalisation phase.

Finally support for Trump and confidence in his administrations ambitions are quickly fading after two of his business advisory board members were dissolved overnight. Not only is he losing the confidence of the public but business leaders are starting to abandon him. It doesn’t bode well for his policy ambitions and that could impact markets and the outlook for the economy.

David Flanagan

Director - Interest Rate Markets