A burst of reality on wages over the next year from the second most senior official at the Reserve Bank.
Deputy Governor, Guy Debelle told a conference in Canberra yesterday that Australia had to get used to low wage rises for some time to come – and that in turn means the Reserve Bank will have to oversee inflation under its 2% to 3% target, as well as weak levels of household consumption.
And that, in turn, is bad news for retailers over the next few years – with the possible exception of those in food and supermarkets.
Dr. Debelle conceded in his speech that lower-wage rises will be the “the new normal” with most workers likely to see increases of between 2% and 3% for the foreseeable future.
He told the Australian Council of Social Service in Canberra on Tuesday, that the RBA’s business liaison program suggested 80% of all businesses expect “stable” wages growth in the coming year with only 10% tipping stronger growth while the remaining 10% believe it may slow.
“A gradual lift in wages growth would be a welcome development for the workforce and the economy,” Debelle said. “It is also needed for inflation to be sustainably within the 2-3 percent target range.”
“The more wages growth is entrenched in the two-s, the more likely it is that a sustained period of labour market tightness will be necessary to move away from that,” he said.
“This supports the case that lower-wage rises have become the new normal. At the same time, I don’t think there is much risk in the period ahead that aggregate wages growth will move any lower.”
Dr. Debelle said there had been an increase in the number of enterprise bargaining agreements of more than three years in length. These agreements were locking in low wages growth for an extended period of time.
“The lower wages growth incorporated in those agreements suggests that wages growth of around 2.5 percent for EBA-covered employees will persist for longer than in the past,” he said.
His points have been made with increasing frequency by the central bank – himself and his boss, Governor Philip Lowe – in speeches this year and in RBA publications such as the recent 4th Statement on Monetary Policy for the year.
Dr. Debelle said the recent extended period of low wages growth had probably contributed to the lift in the number of people entering the workforce.
He said many of those looking for work are women, particularly parents, and older Australians in their 50s and 60s.
Dr. Debelle said an increasing number of women are citing “financial reasons” for their decision to come back to work.
“Financial reasons could be capturing a number of different considerations including low-income growth, the rise in household debt or childcare costs,” he said.
Among older workers, Dr. Debelle said improving health had made it possible for more to remain in the workforce.
He said another issue facing older workers is household debt as the proportion approaching or going into retirement with a mortgage had increased.
“Over time, the gradual shift towards later retirement has been more noticeable for those with debt,” he said.
