Australia's Wage Price Index (WPI) for the June quarter is due to be released by the ABS at 11:30am (AEST) today. A robust labour market has delivered the lowest unemployment rate in almost 50 years and indicators of wage pressures in survey data have been rising in response. Today's report is expected to show an uptick in base wages growth to 2.7% led by the private sector.
As it stands | Wage Price Index
The strong recovery in the Australian labour market has driven the unemployment rate down to its lowest level since the early 1970s and supported a rebound in wages growth. As at the March quarter, annual growth in the WPI was 2.4%, up by 1ppt from its low point in the midst of the Covid crisis in 2020. However, wages growth remains subdued both in a historical context and relative to the rise in inflation over this period. The recent momentum has shown signs of quickening by coming in at 0.7% in each of the past two quarters, the sharpest quarterly pace in around 8 years.
The private sector is driving wages growth in Australia. The main impulse is coming from individual agreements with many firms lifting base wages to retain staff in a tightening labour market. Wages growth in the sector lifted by 0.7% in the March quarter to be up by 2.4% through the year. Growth in public sector wages is running at a slightly softer pace at 0.6% in the quarter and 2.2% over the year, reflecting public sector wage caps implemented by state governments across the nation.
Strong demand for labour associated with the economic recovery and high levels of job mobility have seen wages rising fastest in industries in business and professional services. Some of the industries hit hard by the pandemic are also seeing wages picking up relatively more quickly, in particular in accommodation and food services and arts and recreation services as staff shortages have become more acute. Shortages of skilled trades has been a major constraint in the construction industry, contributing to the rise in wages growth.
Market expectations | Wage Price Index
The median forecast is for the WPI to rise by 0.8% in the June quarter and lift the annual pace to 2.7%. Wages growth in Australia hasn't exceeded a 2.5%Y/Y pace (above the midpoint of the RBA's inflation target band) pace since 2014.
What to watch | Wage Price Index
Much of the coverage of today's report is likely to be in the context of high inflation driving falling real wages. Keep in mind, however, that the magnitude of the real income squeeze is likely to be less than implied by these assessments because household income (and labour income) is much broader than what the WPI measures. In another context, the key in today's report will be to see what the response from base wages to the tightening labour market has been. The RBA forecasts wages growth to be at 3% by the end of the year and at a pace that will be starting to add to inflation pressures. An outcome today that keeps that forecast on track is likely to be enough justification for the RBA to hike rates by 50bps for the 4th month in a row at the September meeting.
