The week that was
Surprising no one, the RBA did leave official interest rates on hold at 1.5 per cent, but this was not the key issue. The RBA marginally changed its assessment of current economic conditions and therefore the outlook, as it reacted to the surprisingly low inflation result last month and the trifecta of very weak retail sales results.
This is not to say the RBA has moved to a stance where it is poised to cut interest rates – it is still quite upbeat about the more medium term outlook and it reckons the labour market is improving at a rapid rate. The change of tone means that any talk of a near term increase in official interest rates is likely to be further hosed down until there is a clearer picture on key policy drivers – inflation, wages, unemployment, house prices and global conditions.
The week ahead
It’s all about the labour market with the dual highlights being the Wage Price Index and the Labour Force.
To wages first. One of the hangovers of the GFC has been a soft labour market with record high underemployment, still high-ish unemployment and a move to the gig workforce which is eating away at the traditional working conditions for employees, including wages. As a result of these factors, wages growth has fallen to a record low of just 1.9 per cent, roughly the rate of inflation. This weak wages growth has kept incomes well contained and, as we saw last week, retail sales growth very subdued. The data this week will get a boost from the Fair Work decision to boost to the minimum wage but this will be partly offset by the cuts to penalty rates in some retail sectors. As such the market is looking for wages to lift 0.7 per cent in the quarter for an annual rise of 2.1 per cent. Better than before but still not the sort of increase that is likely to be sending shoppers to the malls or on-line retailers.
The other marque release will be the labour force which will see whether the run of terrific jobs growth can be sustained for another month and whether the gentle trend to lower unemployment can be repeated. The jury is out but the general view of market economists is for a small 10.000 rise in employment and for the unemployment rate to remain steady at 5.5 per cent.