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Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, notes that the Australia’s Q2 Wage Price Index (WPI) expanded by +0.6%/q and 2.1%/y, as widely expected.

Key Quotes

“Wage inflation is improving, but at a glacial pace. The cyclical low was 1.9%/y in Q4 2016.”

“We expect RBA Governor Lowe at Friday’s semi-annual testimony on monetary policy to reiterate that he prefers wages growth to be closer to 3%/y in order to generate underlying inflation closer to target (2 ½%/y).”

“Today’s print of 2.14%/y is consistent with improving bonus payments and enterprise agreements (EA). By industry, wages growth ranges from 1.3%/y for Mining and 2.7%/y for Healthcare.”

“We pencil in +0.65%/q and 2.32%/y for Q3 WPI.”

“Bottom line: could wages growth surprise on the upside next time? As this is unlikely – although 2.3%/y is consistent with the ‘gradual improvement’ theme – we see the RBA expressing continued patience, holding the cash rate at 1.5% well into 2019.”