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ANNA HONG: Tight labour market will continue rate-hike pressure

There’s little to suggest Australia’s tight labour market is easing, which means more pressure on the RBA to continue hiking rates, writes ANNA HONG

IT’S reasonable to expect wages to rise as unemployment in Australia trends down to 3.4%.

So when the most recent Wage Price Index printed below the 0.9% market consensus at 0.7%, newspaper headlines unsurprisingly bemoaned wage outcomes for Australians.

But the headlines don’t show the true picture.

Look closer and you’ll see signs that wages are lifting more than we realise.

Businesses have learned from past mistakes that issues caused by entrenched wage bills are hard to correct.

Employers are now using bonus payments as a stop-gap solution to maintain labour levels required to sustain production. The public sector is also joining the bonus party: NSW Health is handing out a $3000 bonus to workers.

The hope is migration will kick in, keeping these increases as a temporary measure — at least while businesses have the power to pass on price rises to consumers.

Will overseas workers arrive in time to help businesses?

July migration shows little sign of temporary or skilled workers returning — a trend that may continue for a while yet.

Why? Visa bottlenecks.

Before 2022 there was already a visa processing problem — the Department of Home Affairs was struggling to keep pace with a large volume of applications.

Fast-forward to the last federal government’s $875 million budget cut for the Department of Home Affairs and now we have an even bigger problem.

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Pendal’s Income and Fixed Interest funds

That cut was equivalent to a third of the department’s migration expenses.

So regardless of the new Labor government’s desire for a Jobs Summit solution, there is little to suggest the current labour supply pain will be alleviated.

While companies continue to pay up in wages (albeit in variable rather than fixed payments), the Australian consumer will be able to sustain healthy levels of spending.

CBA’s household spending data last week showed a 1.1% month-on-month rise for July. That means the RBA will have to continue hiking on its path to a 2% to 3% inflation outcome.

About Anna Hong and Pendal’s Income and Fixed Interest team

Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here

About Pendal Group

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at August 24, 2022. PFSL is the responsible entity and issuer of units in the Pendal Monthly Income Plus Fund (ARSN: 137 707 996) and Pendal Dynamic Income Fund (ARSN: 622 750 734) (Funds). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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