Daily Commentary BY THE CURVE TEAM –

Glimmer of Hope for RBA

16th of May, 2019

While most of the data continues to pile up against the RBA, yesterday’s data gave the RBA a glimmer of hope that things may evolve as they still expect.

Employment remains the key to the RBA’s outlook and it needs ongoing strength in the labour force data for its forecasts to be released. The hope is that strength in the labour market will eat into the spare capacity, push up wages and in turn lift inflation. Yesterday’s data gave them some hope that this slow process is still unfolding.

The ABS released their latest wage data yesterday and while wage growth on the whole remain just above recent lows, there are signs that it is improving. The annual rate of wage growth edged up again, this time due to a the private sector rather than the public sector. The increase was ever so small, rising from an annual rate of 2.27% up to 2.34%. The trend though is the key.

Wage growth continues to track nicely with the gradual downtrend in the underemployment rate. The RBA would like to see this continue to evolve, albeit much quicker. For now though, this is the thing that is holding the RBA’s central scenario together.

However without ongoing strength in the labour force, the trend could easily stall. We get the latest update on employment today with the ABS set to release the latest stats at 11:30. The market is expecting jobs growth of 15,000 for the month with the unemployment rate expected to remain unchanged at 5%.

David Flanagan

Director - Interest Rate Markets