Daily Commentary BY THE CURVE TEAM –

Wage Growth Hit

19th of November, 2020

Unsurprisingly, wage growth has been significantly hampered by Covid-19.

Wages were up 0.1% for Q3, which leaves annual growth at 1.4%. This annual rate is a record low, with the previous low being 1.9%.

The data is significant, as the RBA has referred to wage growth as being essential for inflation to return to the 2-3% target. They believe wages need to reach 3-4% growth before inflation will be sustainably within the target band.

3-4% wages growth seems an outlandish goal. Those levels haven’t been reached since 2008 during a mining boom and the economy is still in a recovery phase.

Also, overnight the results for Pfizer’s vaccine were upgraded. The vaccine was shown to be 95% effective, which was higher than the 90% initially reported.

This adds to the increasingly positive news for vaccines, which poses the most viable means for the economy to return to pre-Covid levels. It is realistic that wages will recover materially if a vaccine is distributed, albeit not necessarily at a rate high enough to sustain 2-3% inflation.

Employment data for October will be released today. Unemployment is expected to rise to 7.1% from 6.9%, which would likely reflect a shift of workers off JobKeeper payments.

Josh Stewart

Associate- Money Markets