Reserve Bank tips wages growth

dicksmithThe Reserve Bank expects wage growth to pick up eventually even though companies are currently reluctant to raise salaries for fear of becoming uncompetitive.

Employers have cut costs in the face of strong competition but early signs of labour shortages and an inability to further trim margins mean that they will eventually have to raise prices and wages, RBA assistant governor Luci Ellis said in a speech on Tuesday.

Dr Ellis said current enterprise agreements would likely create a lag between labour shortages and wage rises to attract skilled staff, but that firms will eventually have to move on remuneration.

“Despite firms’ reluctance to raise prices, margins cannot be squeezed forever,” Dr Ellis told a conference in Sydney.

“Higher costs will, therefore, boost price inflation over time.”

But heightened competition in retail – which has led to the demise of stores including Dick Smith, led to profit warnings from the likes of Myer, and created margin pressures at retailers including JB Hi-Fi – means there is still firm resistance to lifting wages.

“Foreign retailers have entered the local market in recent years and continue to do so,” Dr Ellis said.

“This has also induced the existing players to reduce their costs to stay competitive, for example by improving inventory management.”

Meanwhile Australian business confidence hit a nine-month high reflecting an improved global outlook says the National Australia Bank.

The lender’s January business confidence index increased 2 points to 12 points on the back of improved global economic conditions NAB said. Business conditions jumped six points to 19 points well above the long-run average with conditions solid-to-strong across all major sectors except retail.

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