Wage growth just ahead of benign inflation

02_Wage growth just ahead of benign inflation

By Colin Brinsden, AAP Economic Correspondent
(Australian Associated Press)

Limp growth in an economy that generates minimal wage increases is hardly the election campaign banter the Turnbull government is trying to spruik.

But new figures suggest just that.

Annual growth wage price stumbled to its slowest pace since the Australian Bureau of Statistics introduced its index nearly two decades ago.

At 2.1 per cent over the year to March, wages are keeping ahead of inflation at 1.3 per cent. Private sector workers are doing worse, clocking growth of 1.9 per cent.

It’s a situation unlikely to change any time soon.

“We expect wages growth to remain soft over the next year or so, which will keep inflation low, while also remaining as a headwind to household spending,” ANZ head of economics Felicity Emmett said.

At the same time, the Westpac-Melbourne Institute leading index of economic activity – which indicates the likely pace of the economy three to nine months into the future – points to a sluggish outlook after a brief spike late last year.

“The recent sharp deterioration in the growth rate of the leading index is … pointing to a more serious below-trend growth performance in 2016/17 than indicated even by the government,” Westpac chief economist Bill Evans said.

In the budget just over a fortnight ago the government forecast 2.5 per cent growth in 2016/17 while the Reserve Bank is more upbeat with a range of 2.5-3.5 per cent.

Wednesday’s results are unlikely to have an effect on an independent assessment of the budget by Treasury and the Department of Finance on Friday as part of the Charter of Budget Honesty during an election campaign.

But a change in the volatile iron ore price might.

Already it has briefly dipped below its average budget forecast of $US55 per tonne.

That was an upgrade from the $US39 forecast in the mid-year budget review but below the $US70 it soared to several weeks ago.

The prediction helps to assess the budget over a four-year period, but can add or wipe billions of dollars to revenue predictions and the budget bottom line if it’s wrong.

Finance Minister Mathias Cormann insists it is a technical assumption because it takes the average of the preceding four-week period of the budget and the mid-year review.

It will be the same for the Pre-election Economic and Fiscal Outlook.

“Nobody knows what the price is over a four-year period,” Senator Cormann told reporters in Canberra.

Shadow finance spokesman Tony Burke said Labor always viewed the May 3 budget assumptions as “nothing short of heroic”.

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