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Wages growth to be well short of inflation

Two key pieces of economic data this week may have an impact on undecided voters as a long, six-week federal election campaign draws to a close.

Thursday’s labour force report for April could see the unemployment rate drop below four per cent to its lowest level since 1974, a result a struggling Morrison government will be quick to claim as a victory for its economic management.

But 24 hours earlier, Wednesday’s crucial wages figures will confirm that despite all the government’s chest beating about a strong economy, voters’ pay is growing at about half the rate of inflation.

The wage price index – data used by the Reserve Bank of Australia and Treasury to assess wages growth – is forecast by economists to have grown at a slightly more upbeat 0.8 per cent in the March quarter.

However, this would still leave the annual rate at 2.5 per cent.

While the highest rate since 2014, it is substantially below the annual rate of inflation at 5.1 per cent as of the March quarter.

Even if economists are wrong and the wage result proves to be stronger because of a tight labour market, there will be little joy for borrowers.

“An upward surprise would show wage pressures being more prevalent than the RBA thought in May, increasing the risk of a supersized 40-50 basis point rate hike in June,” National Australia Bank economist Taylor Nugent says.

As it is, the RBA is widely expected to lift the cash rate by 25 basis points to 0.6 per cent at its June board meeting, following on from its first rate increase in more than a decade earlier this month.

The RBA will release the minutes of the May board meeting on Tuesday.

However, given RBA governor Philip Lowe made a rare press conference after the board meeting, as well as the central bank providing its quarterly monetary policy statement, the minutes may not offer much new.

That statement indicated wages are unlikely to be growing faster than inflation until the end of 2023.

The week kicks off with the Australian Institute of Petroleum releasing its weekly petrol price report on Monday.

After the initial impact of the government temporarily halving of tax excise as part of cost of living package in the March 29 budget, petrol prices have been climbing again towards $2 a litre due to stubbornly high global oil prices.

The data week wraps up with Thursday’s labour force report for April, which is expected to see the unemployment nudge down to 3.9 per cent from four per cent with 30,000 people predicted to have joined the workforce.

Meanwhile, Australian shares look set for a positive start to the week after Wall Street enjoyed a broad rally on Friday after another volatile week.

However, it didn’t prevent US shares ending lower for a sixth straight week, the longest streak since 2011.

The underlying worry remains the US Federal Reserve may not succeed in slowing the economy enough to rein in the highest inflation in four decades without causing a recession.

The S&P 500 rose 93.81 points, or 2.4 per cent, to 4,023.89 and the Dow Jones Industrial Average gained 466.36 points, or 1.5 per cent, to 32,196.66, while the Nasdaq rose 434.04 points, or 3.8 per cent, to 11,805.

Australian share futures rose 54 points, or 0.76 per cent, to 7110 in sympathy.

On Friday, the Australian benchmark S&P/ASX200 index finished up 134.1 points, or 1.9 per cent, to 7075.1.

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