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- New data from CommBank Economic Insights suggests wages growth is accelerating in Australia in response to a tight labour market
- The conclusion comes from ABS data, private surveys, and Commonwealth Bank’s own analysis of salaries paid into CBA accounts
- CBA says it expects the wage price index (WPI) for the final quarter of 2021 to increase by 0.8 per cent quarter-on-quarter, taking the annual rate of wages growth to 2.5 per cent
- In light of this, the big bank predicts the Reserve Bank of Australia (RBA) will pull the trigger on the first 2022 cash rate hike in August, give or take a month
- CommBank says the current tightness of the labour market points to a faster acceleration in wage growth than what the RBA has forecast
New data from CommBank Economic Insights indicates wages growth is accelerating in Australia in response to a tight labour market.
The research arm of the Big Four bank collated data from the Australian Bureau of Statistics (ABS), private surveys and salaries paid into CBA bank accounts to conclude that wages growth continued to accelerate over the final quarter of 2021 and the early part of 2022.
CBA said it expected the wage price index (WPI) for the final quarter of 2021 to increase by 0.8 per cent quarter-on-quarter, taking the annual rate of wages growth to 2.5 per cent.
By mid-2022, CommBank expects annual wages growth to be around 3 per cent, with inflation reaching “at least” 3.5 per cent.
CommBank said the wages growth and inflation rates would lead to the Reserve Bank of Australia (RBA) pulling the trigger on a cash rate hike in August — earlier than the current general consensus among analysts, which slates a rates hike for November.
The RBA has previously stated that elements of Australia’s wage-setting process create inertia in aggregate wage outcomes, hence the relatively soft wages growth over recent years.
CommBank said while it understands the argument, inertia has a “shelf life” and the tightness of the labour market means many workers will be able to leave their jobs for higher pay elsewhere if the opportunity presents itself.
“The current tightness in the labour market, coupled with strong forward-looking indicators of labour demand, points to an acceleration in wages growth that would be stronger than the RBA’s expectations,” CBA said.
“Indeed, we believe that there is a growing body of evidence that indicates wage rises are occurring at a faster pace than the RBA has forecast.”
CBA’s data
Some of the core evidence for CommBank’s assumptions came from ABS payroll data, which the bank said was an experimental series that it brought in during the pandemic.
This series measures the number of payrolls jobs and reported wages associated with each payroll job.
For the bulk of the pandemic, CBA said payrolls jobs and payrolls wages indexes moved broadly together. Since September 2021, however, the wages index has accelerated quicker than the total jobs index, opening up a “significant spread” between the two series.
While there are certainly many other factors at play, CBA said this suggests wages inflation is likely to have materially accelerated over the fourth quarter of 2021.
Coupled with the ABS data is CommBank’s own internal data on wages and salaries paid into CBA accounts. The bank said it used “sophisticated methodology” to model WPI forecasts, and it is from this data that the prediction of the 0.8 per cent growth over the December 2021 quarter and 2.5 per cent annual rate comes.
CommBank said its forecasts were further supported by the NAB monthly business survey and the Markit Purchasing Managers’ Indices (PMIs).
“There is a growing body of evidence that indicates wages growth has accelerated,” CommBank said.
“Our forecast profile for wages growth and inflation means our call for the RBA to commence normalising the cash rate in August (give or take a month) very much remains on course.”
