While some inflation hawks claim a rate rise will come next year, wages and construction data show an economy with a long way to go before prices are going to start surging.
Yesterday’s Wage Price Index (WPI) for the final three months of last year and 2020 as a whole contains a depressing message for the Reserve Bank: wage rises strong enough to push inflation higher will not be coming for years. That should be a wake-up call for inflation hawks pushing a rate rise next year — though it’s unlikely to interrupt their “rate rise looms” dreams.
The quarterly WPI rise of 0.6% for the December quarter released this week by the Australian Bureau of Statistics (ABS) gave an annual rate of 1.4% for 2020 (that was the second quarter in a row of 1.4%). That’s sharply lower than the 2.2% annual rate at the end of 2019 and by far the lowest year on record — wages growth bottomed out at 2.9% during the financial crisis.
There was an illusory quality to the 0.6% quarterly rise as well, given much of it was driven by the reversal of short-term wage reductions imposed by employers during lockdowns — workers were simply moving back to their pre-COVID incomes. Not exactly worth breaking out the bubbly.
Read more about the latest economic outlook.
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