Wages slowdown boosts case for more rate cuts

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It won't be a welcome move for workers, but slower wage increases are good news for borrowers who're hoping for more cuts to interest rates from the Reserve Bank.

reported on Wednesday.

That will ease concerns at the central bank that tightness in the labour market is causing staffing costs and inflation to rise.

Despite giving mortgage holders their first interest rate cut in over four years on Tuesday, Reserve Bank governor Michele Bullock made it clear that the board wouldn't be in a hurry to do more cuts until they're convinced inflation is truly and sustainably coming down to target.

Traders have reduced their expectations of interest rate cuts after her comments, with markets now predicting two more cuts, rather than three, in the current cycle.

Part of the RBA's worry is that an unexpectedly tight labour market, with unemployment at a record-low four per cent, would lead to unaffordable growth in wage expenses for employers and prices rising as a result.

, released alongside the rate cut on Tuesday, the bank conceded there's a risk it has misread the level of excess demand in the labour market.

"There's a fair dinkum debate going on in the market about what level of joblessness or employment suits a low and stable inflation rate," Ms Bullock said.

I'm not making any promises on a specific unemployment rate, but we're keeping a close eye on how low we can keep it without stoking inflation, and so far, the news is good. However, there are still some concerns.

The latest data for Wednesday adds to the evidence that the figure - also known as the non-accelerating inflation rate of unemployment (NAIRU) - is lower than the Reserve Bank's estimated 4.5 per cent, according to CBA senior economist Stephen Wu.

"There are obvious potential downsides to the RBA's prediction for annual wages growth to pick up again to 3.4 per cent," he said.

For that to occur, wages growth would need to increase at 0.9% per quarter.

The 0.7 per cent rise in the wage price index on a quarterly basis was the weakest since March 2022, said Michelle Marquardt, head of prices statistics at the ABS.

The wages slowdown came as a relief and will be viewed favourably by the RBA, said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

He reckons workers have less clout in negotiations than they did a year ago.

But the ongoing growth in real wages showed the government's industrial relations reforms, including its same job, same pay laws aimed at tackling labour hire practices, were having the desired effect, ACTU president Michele O'Neil said.

"Now that people have more work rights and wages are moving, Minister Dutton and his business associates like Gina Rinehart are trying to reverse that progress," she said.

If these new rights aren't put in place, the average Aussie would be out of pocket by $3100, which would be a real blow to their ability to make ends meet.

Treasurer Jim Chalmers said wages were increasing at a faster rate than inflation, which was exactly what his government had aimed to achieve.

"We want Australians to be earning a higher income and keeping a greater share of what they earn," he said to ABC Radio National.

We've got real wages growing once again.

Public sector wages increased at a slower rate than the private sector, despite the number of jobs growing in the public and non-market sectors, like healthcare, outpacing the market sector.

The Reserve Bank of Australia said government spending had given a boost to the job market, but growth in non-government jobs was having a negative impact on private sector employers.

"Strong demand for workers in non-market areas, such as healthcare and education, is probably making it harder to find employees in the market sector," the bank's economists said in its Statement on Monetary Policy.

The rapid expansion of the health care sector has had a significant impact on the overall job market, attracting a large number of workers and resulting in tight labour conditions for businesses in other industries.

Shadow Treasurer Angus Taylor said Labor's excessive spending was driving up inflation and squeezing out the private sector.