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Australia's central bank holding out for long-awaited wage recovery

Published 17/10/2018, 08:25 am
Updated 17/10/2018, 08:30 am
© Reuters.  Australia's central bank holding out for long-awaited wage recovery

© Reuters. Australia's central bank holding out for long-awaited wage recovery

SYDNEY, Oct 17 (Reuters) - Australia's central bank expects a pick up in stubbornly low wages growth given the strength of labour demand, but concedes that experience abroad suggests unemployment could fall further than in the past before a full recovery is seen.

Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle told an investment conference that the labour market was in pretty good shape overall.

"Employment growth is above average, the participation rate is at a high level, the vacancy rate is at an all-time high and the unemployment rate is falling," Debelle said.

Leading indicators of labour demand suggested the jobless rate should gradually decline further from the current six-year low of 5.3 percent and so push wages higher, he said.

Subdued wages growth is a major reason inflation has undershot the RBA's 2 to 3 percent target band in the last couple of years and why interest rates are stuck at record lows of 1.5 percent.

However, there were a number of uncertainties about the outlook.

"The recent international experience indicates that the unemployment rate could decline further than historical experience would suggest before we see a material increase in wages growth," Debelle said.

Several developed world nations have seen jobless rates fall to very low levels, notably the United States and Japan, without much of an increase in wages growth.

Debelle said there was a chance the unemployment rate in Australia could fall faster than currently expected should the participation rate level out after its recent strong run.

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