Economists focus on RBA and wages

ECONOMISTS this week pondered plunging consumer confidence, slow wages growth and an immobile central bank.

The minutes of the RBA's latest board meeting were released on Tuesday.

Economists pored over the changed wording of the minutes for any hints of a shift in the RBA's stance but found nothing conclusive.

But JP Morgan economist Stephen Walters said the RBA's board members clearly still feel that interest rates "will not be going anywhere any time soon".

"Officials probably simply got bored with the previous verbiage, so have tried to express the same thing another way," he said.

Key to the RBA's stance is the sluggish labour market, with slow wages growth and an unemployment rate refusing to fall.

The ABS confirmed wages growth was weak, with 2.6 per cent annual growth the slowest in the 14-year history of the data series.

RBC Capital Markets economist Su-Lin Ong said that reflected the weakness of the labour market last year.

"While this may be the trough in wages growth amid a stabilising labour market, a sustained pickup is not on the cards over the next few quarters," she said.

Commonwealth Bank economist John Peters noted that wages growth was now below the official inflation rate of 2.9 per cent.

"In today's deregulated and decentralised wages system most workers have precious little real pricing power, and are essentially 'price takers' rather than 'price makers'," Mr Peters said.

Janu Chan, economist at St George Bank, said recent improvement in labour market indicators meant wages growth should not slow much more, but that a pickup would require a "substantial and sustained" fall in unemployment.

"We expect the RBA will leave rates on hold for most of this year before raising rates in November, although there is a chance it could hold off until early next year," she said.

But a rate cut might still be possible.

"The fiscal drag, alongside stubbornly high AUD, rising joblessness, and the sluggish transition away from the mining investment boom, are key elements of our view that the RBA's job here may not be complete," JP Morgan's Walters said on Tuesday, correctly anticipating an "ugly" post-budget slump in consumer confidence, reported on Wednesday.

AMP's chief economist Shane Oliver had been expecting the first rate hike to be around September or October but the negative reaction to the Budget could change things.

"If consumer confidence does not bounce back in the months ahead it's likely that there will be increasing talk that the next move in interest rates will be down," Dr Oliver said.

But the ANZ's economists think they can see a light at the end of the tunnel.

"There is now clearer evidence that labour demand is strengthening," they said in a report on Friday.

But they said the improvement overall should still be slow enough to allow the RBA to keep the cash rate at 2.5 per cent until next year, before a rise to 3.5 per cent during 2015.

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