Wage Pressures???

The Wage Price Index was released yesterday.
Let me hand it over to the excellent CBA economics team.

"Annual wages growth, as measured by the WPI, is travelling at its slowest pace since the series began in 1998.  It’s no surprise that wages growth has slowed given the increase in spare capacity in the labour market (best captured by the increase in the unemployment rate).  But the decline has been sharper than previous episodes largely because we now have a more flexible labour market in Australia that is more responsive to changes in labour demand.  The large decline in the terms of trade from lower commodity prices has also weighed on wages growth.  If wages had not been so responsive to cooling demand for labour it’s more likely than not that the unemployment rate would have risen more sharply than what we’ve observed.  On that basis there are two positives from the sharp slowdown in wages growth – more people employed and an improvement in international competitiveness. 

Soft wages growth has played its role in generating benign CPI inflation.  In our view, weak wages growth looks set to persist over the next year given the degree of spare capacity in the labour market.  This will be further exacerbated by any additional commodity price weakness.  The RBA holds this view also and it underpins their soft easing bias.  As the central bank duly noted in the November Minutes, “the inflation outlook may afford some scope for further easing of monetary policy, should that be appropriate to lend support to demand.”  We don’t expect further rate cuts given there is a growing body of evidence that indicates the necessary rebalancing in the economy is occurring under the umbrella of low interest rates and a lower AUD.  However, it’s clear that tepid price pressures will continue to keep the door ajar for further policy easing and as such the RBA is likely to keep its soft easing bias intact at the December Board meeting."

So there we have it. A flexible labour market is doing its job.

Hang on what about those clowns who said the ALP re-regulated the labour market. The Hendersons. Sloans, Kates and whatever.

Absolute silence. No sign of any of them saying sheepishly we wuz wrong.

Absolute Hypocrites

Here's Greg Jericho

 courtesy of Alan Kohler