Public sector wages could get boost by way of interest rate reduction

Except, that is, if you are a federal, state or local public servant.

The latest official measure of hourly pay rates puts numbers to what many already know, that their income is not keeping pace with living costs.

According to the Australian Bureau of Statistics, wages nationally increased by 0.8 per cent in the June quarter, matching the increase in headline inflation. These are the numbers the government wants you to focus on in assessing whether or not your earnings are falling behind inflation.

The annual numbers paint an uglier picture. According to them, wages grew at an annual rate of 3.6 per cent last quarter while inflation climbed 6 per cent.

And for those in the public sector the scene is even more grim. For them, hourly rates increased by an average 0.7 per cent and the annual increase was a meagre 3.1 per cent - barely half the rate of inflation.

There are some provisos.

The share of workers securing wage rises greater than 3 per cent is increasing, and the proportion getting a pay bump of between 4 and 6 per cent is the highest it has been in 14 years.

And more significant salary hikes are in the offing. In the next two weeks the government will reveal whether it has sweetened the 10.5 per cent over three years offer rejected by the main union for federal public servants in May.

The September quarter is also when a lot of awards and enterprise agreements are updated. The next lot of wages data will also reflect the recent 8.6 per cent increase in the minimum wage.

The government expects that as inflation continues to ease, even modest wage increases of the kind currently being secured will be enough to start to deliver real wage gains.

Many economists think the moderate pace of pay rises will reassure the central bank, which has been nervous that the very low unemployment rate would spur an unsustainable wage-price spiral.

Though employer groups caution wages could still take off and stoke inflation, economists like David Bassanese from Betashares and Stephen Wu from the Commonwealth Bank think a combination of slower growth, high workforce participation and the big migrant influx will help contain wages and could even see them moderate.

One of the wildcards is productivity, which has stagnated in recent years.

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Outgoing Reserve Bank of Australia governor Philip Lowe has repeatedly warned that it needs to grow in order to sustain real wage gains without driving up inflation.

Some economists think that as the labour market loosens the incentive for employers to "hoard" workers will weaken and productivity will improve. It will take time to see if this is the case.

In the meantime, many expect interest rates to be on hold for an extended period and the next move will be down, possibly beginning in March or April next year.

For indebted households, that could be as good as a pay rise.

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