RBA urged to hold tight on interest rate hikes as wage growth flattens

Employment Hero CEO Ben Thompson has urged the Reserve Bank of Australia (RBA) to halt further interest rate increases for the near term as the latest Employment Hero SME Index has revealed that Australia’s wage growth is beginning to flatten, aligning with inflation.

The SME Index for October revealed that the monthly median hourly rate marginally increased by 0.5 per cent, a modest change compared to earlier months in the latest quarter, which saw a 2.8 per cent rise. Average employee growth also saw a marginal increase of 0.1 per cent month-on-month (MoM), with a quarterly change of 0.8 per cent. The Index noted that the real-time development in wage growth paired with an ongoing decrease in employee growth rates marks a potential turning point in the nation’s economic trajectory. 

Thompson asserted that as wage growth becomes more in line with inflation, Australian workers should be spared from further cash rate increases.

“The RBA’s recent fears of a wage-price spiral were previously indicated in our June Index, something we could identify due to the real-time granularity of our data,” Thompson said. “However, our latest October data now reflects the critical alignment of wage growth with inflation. We’re almost certain that Aussies will be spared further cash rate rises for the remainder of this year. In fact, we would strongly encourage the RBA to hold tight on further interest rate increases. 

“As we expect this plateauing wage trend to continue in 2024, Australian businesses and workers should receive a breather over the holiday season if the Reserve Bank pays attention to the data and pauses rate rises in at least the short term,” Thompson added.  

While the SME Index for October shows a flattening in wage growth, it also highlighted a surge in healthcare hiring ahead of a predicted rise in COVID outbreaks over the holiday season and the notable return of older workers to the workforce. The Healthcare and Community Services sector observed a 1.2 per cent quarterly increase in average employee growth and an 8.8 per cent increase year-on-year (YoY). 

Meanwhile, other key industries, including construction and trade services; manufacturing, transport and logistics; retail, hospitality and tourism; and science, information and communication technology recorded below one per cent in quarterly increases. 

This trend is seen as aligning with expectations of a seasonal COVID outbreak, with recent NSW Health data detecting COVID cases in NSW soaring more than 20 per cent in the past fortnight amid a national spike in vaccination rates, leading experts to believe there’s concern over a “COVID Christmas”. 

Healthcare and Community Services additionally saw the greatest increase in the median hourly rate of all industries, rising 1.3 per cent month-on-month, 3.8 per cent quarterly, and eight per cent year-on-year. The Index interprets the data as that of the Healthcare sector still bearing the brunt of talent shortages, causing wages to grow faster than other industries. 

The Index also noted a significant return of older workers to the workforce over the past year. The 65+-year-old age group experienced an 8.6 per cent increase in the median hourly wage rate compared to October 2022.  This increase surpasses that of other age groups, including Under-18-year-olds at eight per cent, 18-24-year-olds at 6.5 per cent, and 25-65-year-olds at 7.3 per cent. The data suggests that cost of living pressures may be a driving factor for this demographic’s return to work, particularly now in the lead-up to Christmas.