There’s a lot of money out there. No one wants to clean it up.
Well, what a flop that was.
Fizzle fizzle nothing burger.
I’m talking about the latest wages data.
It was the most hotly anticipated thing in markets. Why? Because the RBA has been justifying their Last of the Mohicans rate rage cycle on the fear that wages were running too hot, and were going to crystalise into a toxic wage-price spiral.
They’ve even been saying that they think wages were already running hot, based on conversations they were having with businesses.
But in the end, nup. Nothing. The wages data was borderline soft.
The Wage Price Index was released last week and it showed wages growing at just 0.7% in the quarter, and just 2.6% over the year.
Yes, this is higher than it was. Yes, this is the highest level in 5 years.
But it’s still less than the 3% the RBA thinks it needs to get inflation into its target band.
That is, wages are not growing quick enough to even get inflation in the target, let alone beyond it!
They’re definitely not too hot.
Not by a long way.
What’s worse, when you dig into the data, the wage gains we did see were driven by a very small portion of the population.
Just 14% of workers got a pay rise. 86% didn’t.
If the RBA was worried about a wages breakout, there is literally nothing to see here.
On top of that, we got labour force data, which showed the unemployment rate falling another notch to 3.4% – still the lowest level in 50 years.
But that fall was driven by a fall in the number of people participating in the labour forces. Actually employment fell by almost 50,000 jobs, compared with the gain of 20,000 that markets were expecting.
So that’s a decent miss.
And what does it mean?
Well, it means the RBA should probably take a chill pill.
Wages is refusing to break out, and the labour market may already be softening.
The case for urgent and radical rate hikes just isn’t there.
Or in the more sagacious words of the CBA economists:
The annual pace of wages growth is very modest considering the tightness in the labour market.
… As we have stated previously, the RBA is not facing a wage-price spiral like is being observed in some other jurisdictions. Put another way, the RBA does not have to run hard against wages growth by aggressively hiking the cash rate.
However, the RBA has been tightening at an incredible pace despite the official wages data, and our own, indicating we simply do not have strong broad-based wages growth.
Take it easy RBA.
No point punishing workers for thought crimes they haven’t committed.