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Australia: Focus shifts on consumer sentiment and wage price index - Westpac

Analysts at Westpac suggest that Australia’s consumer sentiment and wage price index are going to be the key economic release tomorrow which will be keenly watched by investors to gauge the strength of the economy.

Key Quotes

“The Westpac-Melbourne Institute Consumer Sentiment Index rose 3.6% to 101.4 in Oct, the first time since Nov last year that optimists have outnumbered pessimists and the highest level since Oct 2016. The lift has come from an improving global economy, easing concerns about rising interest rates and over-heated housing markets, and improving labour market conditions. However, confidence is still not particularly strong, with views on family finances a clear weak spot.”

“This month's survey is in the field over the week ended Nov 11. Factors that may influence confidence include: the RBA's decision to again leave rates on hold; more signs of cooling across Australia's major housing markets; disappointing retail updates; and renewed political instability. Notably, the ASX is also up over 5% since Oct.”

Wage Price Index

  • Wages have lagged the recovery in the Australian labour market. While it is part of a global phenomenon of wage deflation, there are domestic considerations as well. Rising part-time employment and underemployment have a role to play particularly in Victoria which has the fastest population growth and higher rate of employment growth.
  • The rise in the national Minimum Wage has an impact in the September quarter Wage Price Index. The RBA has estimated a direct impact of 0.5ppt boost in the quarter due to the increase. Given that the previous Minimum Wage increases contributed 0.3ppt, the net impact of the increase is a 0.2ppt boost to the underlying pace. 
  • Our 0.7%qtr forecast will lift the annual pace to 2.3%yr, the fastest pace since September 2015.”

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