Daily Commentary BY THE CURVE TEAM –

Weekly Insights – Wages & the RBA

22 November, 2021

Key Updates:

  • Wednesday – Construction Work Done Q3
  • Thursday – Weekly payrolls to October 30 and Private Capital Expenditure Q3
  • Friday – Retail Sales October

Wages Underwhelm

Last week, wages data for Q3 was released. It showed a 0.6% increase for Q3, amounting to a 2.2% rise on last year.

Considering the very low numbers for Q1 and Q2 last year when covid began, this is a very weak number. It challenges the market’s expectation of cash rate rises as soon as next year, with the RBA making it clear they need wage driven inflation. This likely requires wages above 3%.

In February and May next year, Q4 and Q1 2022 wages respectively will be released. Unless there is a marked run up in wages over the next two quarters it is hard to imagine the RBA budging from its stance that wages need to be driving inflation.

On the other hand, overseas central banks are under considerable pressure to raise rates sooner. Inflation and wages overseas are higher than in Australia.

Higher rates overseas would depreciate the Australian Dollar, providing a tailwind for the economy which could prompt the RBA to raise rates sooner than they expect. There is still uncertainty though. For example, covid cases in Europe are surging, which risks lockdowns being reintroduced.

If a similar thing were to happen in Australia and elsewhere it is hard to envisage central banks tightening.

Josh Stewart

Associate - Money Markets