Australia's Q1 wages growth disappoints, bolsters lower-for-longer rates view

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Australian wage growth remains weak despite strong employment growth over the past year.

Following the release of Australia's weak March quarter wage price index on Wednesday, revealing wage growth over the year was stagnant at just 2.1%, Bloxham has chose to push back the expected timing of the first RBA rate hike since late 2010 to the June quarter of 2019, later than his prior forecast for the December quarter this year.

It still sees official interest rates moving higher, just not until the June quarter next year.

This is roughly in line with the 20,000 jobs rise that had been expected by economists, although they had thought the unemployment rate would have remained at 5.5 per cent.

The miserly pace of wage growth is a major reason RBA does not see core inflation reaching the mid-point of its 2 to 3 per cent target band during its forecast period ending mid-2020.

"There is a risk it may take a lower unemployment rate than we now expect, to generate a sustained move higher [in wages growth]", asserts Debelle.

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In the United States, Treasuries were little changed to open the week on Monday during a relatively quiet session light on data of great significance with news flow largely limited to FOMC commentary from Cleveland Fed President Mester overnight, reiterating the likelihood of further rate hikes over the medium-term and St. Louis Fed President Bullard warning of possible yield curve inversion in late 2018 or early 2019 if the Fed continues to tighten further.

That outlook has dimmed the mood of Australians with a Melbourne Institute and Westpac Bank survey showing its index of consumer sentiment easing 0.6 percent in May as consumers remained cautious about their finances.

Policymakers have repeatedly emphasised an acceleration in wages would be necessary to revive inflation, calling for workers to demand higher pay hikes.

Annual wage growth in the private sector stayed stuck at 1.9 per cent with not a single industry paying more than 2.8 per cent.

The last time wages grew as fast as 3.5 percent was in the third quarter of 2012.

Data due Wednesday is likely to show wage growth stayed near all-time lows at an annual 2.1 percent in the quarter-ended March, even as brisk job gains are expected on Thursday.

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