By Ashwin Clarke, Senior Economist at CBA
- Wages measured by the Wage Price Index rose by 0.8%/qtr held up by strength in state government enterprise agreements, in line with both our, consensus, and the RBA’s expectations. The annual rate remained at 3.4%.
- The Minutes of the November Monetary Policy Board meeting highlight the key questions for the future of monetary policy: the persistence of inflation; the outlook for the labour market; and the restrictiveness of the cash rate.
- Offshore, the long-awaited September US payrolls data was mixed, with jobs growth surprising to the upside, but the unemployment rate ticked up, clouding the outlook for the Fed funds rate. This followed a more hawkish than expected read in minutes of the FOMC meeting
- Next week, the ABS will publish its first monthly CPI release, which will be a key data point for the RBA Monetary Policy Board’s December meeting. We’ll also see the first Q3 partial economic activity data come in as we lead into Q3 GDP.
The key domestic data release last week was the Wage Prices Index. Wages rose by 0.8%/qtr in Q3 25, the same pace as Q2 25. Annual growth remained steady at 3.4%. The result was in line with CBA, consensus, and RBA expectations.
Wage growth remained solid in the quarter underpinned by strength in the public sector (+0.9%/qtr, +3.8%/yr) from chunky gains in state government enterprise agreements. Private sector wage growth eased slightly to 0.7% and wage growth in Individual Agreements continued to ease.
The trends in the private sector should give the RBA a little comfort that labour costs are still easing. This should eventually flow through to inflation.
Internal data suggests wage growth has continued to ease since the end of September. However, we generally see the speed limit of the Australian economy being reached in coming quarters, which could limit the extent of further easing in wages from here.
The Minutes of the November Monetary Policy Board meeting were also released this week, which highlighted key questions considered by the board: the persistence of inflation, the outlook for the labour market and the restrictiveness of the cash rate.
The minutes report on a meeting that predated a number of important releases. These releases were relatively solid which will ease some of the Board’s worries about downside risks and allow the Board to focus on inflation.
Indeed, on Thursday, the RBA’s chief economist reiterated the focus on spare capacity (i.e. lack thereof), noting that the models suggest the labour market is currently a bit tight and that it is operating slightly beyond what can be sustained with inflation at target. This tone is consistent with our expectations that the labour market is close to balance and that rates will stay on hold for the foreseeable future.
The September quarter inflation outcome appears to reflect a mix of both large price increases in transitory price categories and a stronger underlying inflationary impulse. The stronger underlying impulse could see prices remain sticky over the period ahead.
Looking ahead, trimmed-mean inflation is expected to ease to 0.8% in the December quarter, which would see its annual rate increase to 3.2%. We see the annual rate gradually slowing to 2.7% by the end of 2026 and 2.5% by mid 2027. This outlook for inflation supports our view that monetary policy will be on hold for an extended period.
Also underlying our on-hold view is the outlook for household consumption, which we updated on Monday. We expect it to be solid for the rest of the year supported by the lags from strong income growth from the Stage 3 tax cuts and earlier interest rate decreases. It is then expected to ease to grow in line with incomes.
Offshore, the week was topped off by the much-anticipated September US payrolls data. Payrolls rose by 119,000 in September, above the consensus estimates of a 51,000 gain. However, the July and August numbers were revised down and the unemployment rate lifted to 4.4% (4.3% expected) because of an increase in the participation rate.
This mixed result has clouded the outlook for the Fed funds rate, which follows a more hawkish than expected tone in the FOMC minutes.
This week, the first monthly CPI print will be released covering October. We expect headline inflation fell by 0.2% in October, taking the annual rate to 3.6%. Softer electricity and fuel prices are key drivers of the decline in the month.
The RBA are likely to interpret the result with caution given monthly data can be volatile and there can be teething issues with the data, particularly given the short window the ABS has to seasonally adjust it.
The first partial data on aggregate economic activity will also be released, consisting of data on building activity and capital expenditure already done and future intentions.
