Growth spurt won't deliver wage bonus: RBA

Marion RaeAAP
Deputy RBA governor Guy Debelle says Australia's economic recovery has exceeded all expectations.
Camera IconDeputy RBA governor Guy Debelle says Australia's economic recovery has exceeded all expectations. Credit: AAP

Even with jobs growing more quickly than anticipated, pay packets won't follow suit for years.

A slow grind higher for annual wages growth to around 2.5 per cent by mid-2023 is tipped by the Reserve Bank of Australia, despite the jobless rate improving to 4.5 per cent by then.

"The board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target," the RBA said in its statement on monetary policy issued on Friday.

"The labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest."

Treasurer Josh Frydenberg has already warned the RBA now has little scope to drive unemployment lower and wages higher by cutting interest rates, which he says has placed more of the burden on fiscal policy.

Both the RBA and Treasury's best estimate is that the unemployment rate will now need to have a four in front of it to get wages and inflation to accelerate. Next week's budget will spotlight any differences in opinion.

Shadow treasurer Jim Chalmers told AAP economic recovery remains uneven with wages growth still expected to stagnate for the next two years, following eight years of the weakest period of wages growth in Australia's history.

"Recovery would be stronger, broader and more effective without the Morrison government's bungling of the vaccine rollout, quarantine failures, and a stubborn refusal to put in place meaningful policies that will actually create jobs and get low wages moving," he said.

Economic growth is now forecast to be 4.75 per cent over 2021 and 3.5 per cent over 2022, tracking below pre-pandemic forecasts mostly due to lower population growth.

That baseline scenario depends on the domestic vaccine rollout accelerating in the second half of the year and the international border gradually reopening from early 2022.

It also assumes no further big outbreaks, no extended hard lockdowns within Australia, and that any restrictions imposed are brief.

Australia's contraction in the six months to December was trimmed to -1.1 per cent from -2.0 per cent, and GDP growth is expected to have been solid in the March quarter.

The RBA said it would continue to closely monitor trends in borrowing to make sure lending standards are maintained.

But home buyers can bank on low interest rates for years, especially as owner-occupiers have so far outpaced investors in the quest for credit.

The central bank saw little damage from the end of the JobKeeper program and various social assistance measures.

"While these programs have largely expired, strong growth in employment has broadly cushioned the effect of the winding down of these programs on household income," RBA said.

The RBA board left the cash rate, and its suite of other policies, at a record low 0.1 per cent earlier this week.

The latest statement reiterated central bank governor Philip Lowe's intention to keep a lid on the cash rate until inflation is sustainably within the two to three per cent inflation target.

The consumer price index is expected to temporarily spike during the June quarter this year because of the reversal of some COVID-19 era price reductions.

Underlying inflation, which guides policy decisions, is expected to remain subdued at 1.5 per cent in 2021 and 2.0 per cent by mid-2023.

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