Fresh wage growth data from the Australian Bureau of Statistics (ABS) has revealed a rise over the year, but wages still lag behind latest inflation levels. Just what does this mean for homeowners and renters?
ABS figures showed that in the 2022 March quarter, the seasonally adjusted Wage Price Index (WPI) rose 0.7% over the quarter, and 2.4% over the year. This increase to Australian’s take-home pay remains behind the latest inflation figures, which posted a 5.1% jump over the same annual period – the highest recorded since the 1990s, and an influencing factor for the May 2022 cash rate hike.
RateCity.com.au said that with the Reserve Bank looking at macroeconomic factors such as inflation and wage growth when deciding cash rate movement, the latest wage growth figures have a role to play in its next decision around monetary policy in June.
Some economists had suggested that along with a strong wages growth, a larger rate hike of 40 basis points could take place, as opposed to the RBA’s standard 25 basis points hike. And in the central bank’s May 3 board meeting, it was revealed that it had considered a greater hike of 40 basis points for May.
“An argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates,” Mr Lowe said in the minutes.
Westpac previously forecast a 40 basis points hike in June due to rising inflation. At that time, RateCity.com.au analysis found that such an increase could see a homeowner on a 25-year, $500,000 home loan paying an extra $129 a month in mortgage repayments by June.
But where Lowe previously signalled a 3% rise would mean a necessary rate hike, RBA now said it will look at average hourly earnings instead.
“In March quarter 2022, the average size of private sector hourly wage rises increased to 3.4%, the highest quarter increase since June 2013,” said Michelle Marquardt, ABS head of prices statistics.
RateCity.com.au said that while it’s hard to definitively predict what RBA will do next, a 2.4% annual rise in wages and 3.4% increase in private sector hourly wages may suggest a second interest rate hike for 2022, though likely less severe than suggested.
For anyone not worrying about their home loan interest rate, wage growth trailing behind inflation is still not ideal.
“Real wages are going backwards and are expected to go backwards even further today, when the new numbers for wages are released,” Jim Chalmers, Shadow treasurer, told ABC. “What really matters is whether people can feed their families in this cost-of-living crisis when their real wages are going backwards.”
The current cost-of-living pressures will impact all Australians – whether they currently own a home or not. But with monthly mortgages now cheaper than renting in 274 suburbs, or one in four markets across the capital cities, higher cost-of-living means it’s much harder to afford rent – let alone save for a deposit, RateCity.com.au said.
And with a record-low of just 1% in national vacancy rates amid a surge in rental demand, according to the latest Rental Vacancy Rate report from Domain, renters are now battling it out in a landlord’s market.
RateCity.com.au said an increasing cash rate and rising interest rates on home loans may help lower house prices, making it more affordable for potential homebuyers to enter the property market. Renters stuck paying a landlord’s mortgage, however, may struggle to save a deposit if wage growth continues to lag behind inflation, even if the housing market becomes more affordable.
