You are using an older browser version. Please use a supported version for the best MSN experience.

Small wage growth keeps just ahead of CPI

AAP logoAAP 15/11/2016 Colin Brinsden, AAP Economics Correspondent

New figures may explain why workers may be feeling a bit light in the hip pocket.

Annual wage growth is at its slowest pace in at least two decades and though keeping ahead of inflation, the gap is narrowing.

Wages grew by just 1.9 per cent over the year to September, in data released on Wednesday, compared to the consumer price index of 1.3 per cent.

JP Morgan economist Tom Kennedy says at first glance, declining wage growth sits at odds with the drop in the jobless rate this year from six per cent to 5.6 per cent.

But the rise in underemployment as employers show a preference for part-time workers suggests the composition of the labour market "is still insufficient to generate a material pick up in wage outcomes".

Labour force figures for October are released on Thursday, which economists expect will show the jobless rate ticking up to 5.7 per cent from 5.6 per cent previously.

Wednesday's wage cost index - the Reserve Bank's preferred measure of wages growth - rose by 0.4 per cent during the September quarter, an even smaller rise than economists had expected.

It resulted in the lowest annual rate since the index was first compiled in 1997 and compares with the previous trough of 2.1 per cent seen over the two previous quarters.

Slow wage growth comes at a time when personal debt is rising, a concern Reserve Bank governor Philip Lowe warned is a greater risk to the economy during a dinner speech on Tuesday.

Opposition Leader Bill Shorten agreed Australians are "maxing the plastic" in a low interest rate environment.

"That's why we need more than slogans from the government," Mr Shorten told reporters in the north Queensland city of Mackay.

Dr Lowe told the Committee for Economic Development of Australia rising debt levels needed watching carefully, supporting an apparent reluctance to cut the cash rate any further.

"As I said recently when explaining our monetary policy decisions, it is unlikely to be in the public interest, given current projections for the economy, to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term," he said.

However, other figures pointed to a fairly upbeat economic growth rate well into 2017.

The Westpac-Melbourne Institute leading index, which aims to predict economic growth three to nine months into the future, foreshadowed an above trend pace of around three per cent.

Westpac chief economist Bill Evans said this was consistent with his bank's recently upgraded forecast of 3.3 per cent for 2017.

It reflected the recent improvement in the terms of trade from a boost to commodity prices, and the expectation of sustained residential construction and strong resource and service exports.

image beaconimage beaconimage beacon