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RBA's Debelle Says Lower Wage Rise Is New Normal

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Reserve Bank of Australia Deputy Governor Guy Debelle said the lower wage growth has become the new normal.

Around 80 percent of firms expect stable wage growth over the year ahead and only about 10 percent anticipate stronger wage increases. "This supports the case that lower wage rises have become the new normal," he said in a speech to Australian Council of Social Service conference, on Tuesday.

"We expect wages growth to remain largely unchanged at its current level over the next couple of years," Debelle said.

The banker noted rising evidence that suggests that wage adjustments of 2-3 percent have become the norm, rather than the 3-4 percent in 2012.

Debelle observed that the surprising strength in labor supply has been one of the factors that contributed to wages growth being slower than expected.

He said the more wages growth is entrenched in the 2-3 percent range, the more likely it is that a sustained period of labor market tightness will be necessary to move away from that.

This increase in labor supply has meant that the strong employment outcomes in recent years has not generated the pick-up in wages growth that might otherwise have occurred, he added.

He concluded that a gradual lift in wages growth would be a welcome development and it is needed for inflation to be sustainably within the 2-3 percent target range.

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