"The last time that wages were a concern was in 2007-08, when the wage cost index was growing around 4¼%. But as the chart opposite shows, wages growth has already returned to 3.9%, which is only marginally below the pace recorded a few years earlier. So why isn’t the RBA pressing the alarm bell now...it is worth noting that while there is a common perception that the RBA’s line in the sand for wages growth is 4½%, this rule of thumb does not apply to the wage cost index. This is because the wage cost index attempts to measure changes in the price of labour “unaffected by changes in the quality or quantity of work performed”. That is, it is already partly adjusted for productivity improvements. Hence, on this measure wages growth above 4¼% is probably not consistent with the RBA’s 2-3% inflation target."
