What to expect: Wage Price Index (Q4)

Australia's Wage Price Index (WPI) data for Q4 are scheduled to be released by the ABS at 11:30AM AEDT today (20/2). Historically not regarded as market moving, this is now one of the most closely watched indicators in Australia, with implications for household spending heightened by the ongoing weakness in the nation's housing market and also in providing some insight into the level of excess capacity in the labour market. Slow wages growth has been a persistent headwind to Australian households over recent years, not unlike the experiences of most other major advanced economies in the post-GFC period. 

As it stands | Wage Price Index 

In Q3, growth in the WPI (total hourly rates of pay ex-bonuses) matched market expectations at 0.6% for the quarter and 2.3% over the year. Wages growth continues to be sluggish around a 2% annual pace, with signs of a very gradual lift in recent quarters. Public sector wages (0.6%q/q, 2.5%Y/Y) again outpaced the private sector (0.6%q/q, 2.1%Y/Y). 

   

Market expectations | Wage Price Index 

According to Bloomberg data, the median forecast for wages growth in Q4 points to a repeat of the outcome from the previous quarter at 0.6%q/q and 2.3%Y/Y. There are two major factors supporting the outlook for wages growth. Firstly, the nation's labour market made a strong improvement last year; the unemployment rate fell from 5.6% to 5.0% and the broader measure of underutilisation declined from 14.1% to 13.3%, though this is still elevated. Secondly, the national minimum wage increase for 2018 of 3.5% was stronger than in recent years and implied a boost of around 0.2ppt to wages growth in Q3. The new award applies from Q3 onwards so it will provide a further lift to today's figures.    

What to look for | Wage Price Index 

The Reserve Bank of Australia in their recent Statement on Monetary Policy forecast wages growth to rise on a gradual trajectory to 2.5% by year-end and then to 2.6% in 2020. Look for the recent gentle uptrend to continue in today's release. 

Particular focus should also be attached to the state-level data, notably in the two largest states of Victoria and New South Wales. Victoria's labour market is now the tightest in the nation after a sharp improvement in 2018 and New South Wales is not far behind. Wages growth has been modest at 2.4%Y/Y for New South Wales and 2.5%Y/Y for Victoria, though stronger outcomes appear likely going forward and will be key to driving the headline national rate. 

Also, watch for the Wage Price Index including bonuses measure, which has indicated a recent uptrend in businesses turning to bonuses to assist with retention while keep wages growth contained.