The week that was
Wages growth disappointed – again – rising by just 0.5 per cent in the March quarter for an annual increase of 2.1 per cent. Wages growth appears to be stalled around a 2 per cent annual pace and this is acting as a handbrake on consumer spending, which is also being held down by already high levels of household debt, low savings and problems stemming for the fall in house prices. As RBA Governor Phillip Lowe has noted, a rise in wages growth is a vital if inflation is to return to the 2 to 3 per cent target. It looks like the acceleration in inflation is still some time off.
At the same time, the labour force data were somewhat disappointing. The unemployment rate rose to 5.6 per cent, edging up from the recent low point of 5.4 per cent in October and November last year. After two very weak months, employment rose a moderate 22,600 confirming a marked slowing in the pace of job creation from the rapid increases during 2017.
The overall labour market data were enough to see several more economists further push back their expectations for interest rate hikes from the RBA until well into 2019 or even 2020.
The week ahead
The local highlight will be a speech from RBA Governor Phillip Lowe at the Australia-China Relations Institute. While the focus will no doubt be on Australia’s export dependence on China and the benefits of trade to both countries, Lowe is also likely to discuss some of the recent economic news which shows entrenched low inflation and a softening outlook for the world economy.
In the recent Statement of Monetary Policy, the RBA was forecasting a moderation in the pace of economic growth in Australia’s trading partners out to 2019. The slowdown was not acute, but implied the impetus to the Australian economy from growth in export volumes and prices would be reasonably benign.
Dr Lowe is also likely to be questioned about the recent run of local economic news, most of which points to on-going softness in the pace of economic growth and growing risks from the downturn in house prices and credit growth.