Australian wages growth continues to slow, validating at the margin the RBA's decision yesterday to cut rates into a labour market showing signs of retightening. Growth in the Wage Price Index (WPI) in the December quarter came in at 0.7%, the slowest quarter-on-quarter rise since Q1 2022 and a touch below the 0.8% market forecast. Annual growth cooled from 3.6% to 3.2% - in line with the RBA's revised forecasts - leaving wages growth at its slowest pace since Q3 2022. The slowing in wages growth has been broadly based across the labour market - including in services industries and the public sector where much of the recent strength in employment has been attributed to.
The WPI - a measure of growth in base wages (excluding bonuses and other incentives) across a fixed basket of jobs in the domestic labour market - increased by 0.7% in the December quarter. As mentioned, that is the slowest rise in the quarterly series in almost 3 years - though growth in the prior two quarters was revised up from 0.8% to 0.9% in today's report. But, overall, momentum in wages growth continues to soften as shown in the chart below, tracking at 2.6% and 3.1% in 3- and 6-month annualised terms respectively.
The underlying dynamics also reflect the broader softening playing out. The share of jobs receiving a pay increase in Q4 was 16% (the largest share of jobs receive a pay increase in Q3 following minimum wage and award decisions), down from 21% at the same time in 2023. Meanwhile, the average size of pay increase in Q4 was 3.6% - its lowest since Q2 2022 and well down from the cycle highs of 5.4% in Q3 2023.
Growth in private sector wages was 0.7% in the latest quarter, resulting in the annual pace easing from 3.5% to 3.3% - both outturns at their slowest pace since the first half of 2022. Although the labour market has tightened over recent months, that looks increasingly to be driven by strength in the non-market or public sector. That would help explain the slowing trajectory of wages growth in the private sector; however, even if that assessment is accurate, wages growth in the public sector is also slowing - despite the concentrated strength in that part of the labour market. Wages growth in the public sector was 0.6% in Q4 - slowest since Q3 2022 - with annual growth sliding materially from 3.7% to 2.8%, a 2-year low.
Aggregating Q4's estimates of industry wages growth (see summary table above) into weighted averages for broad sectors of the labour market, wages growth is softening across the board. My estimates have annual wages growth in household (3.0%) and business services (3.1%) back at 2022 levels. Easing wage pressures in these sectors of the economy bodes well for slower services inflation - something RBA Governor Bullock said yesterday will play a role in determining the timing and extent of further rate cuts. Wages growth across the goods-related sector is also easing but is at a slighter faster pace averaging 3.5%. Mining sector wages growth is also at 3.5%, down from 4.1% a year earlier.
