Australian Q3 Wage Price Index 0.8%; 3.4%yr

Australian wages growth came in right on expectations rising by 0.8% in the September quarter, holding the annual pace at 3.4%. Although broader inflationary pressures rose notably in the quarter, the temperature of wages is lukewarm at best. Private sector wages growth (3.2%) moderated to its slowest pace since mid-2022, outpaced by the public sector (3.8%) for the third quarter in succession. The RBA forecasts wages growth to slow to 3% by the middle of next year. Nothing in today's report should alter that outlook.  

Today's release of the Wage Price Index (WPI) - a quarterly measure of wage inflation in the domestic labour market - showed wages growth ticked along at moderate pace in the September quarter. This has been the case for about a year now. At the peak in late 2023, wages growth was pressing record highs for the index well into the 4s; however, since then, wages growth has slowed as labour market tightness has eased, and as lower inflation outcomes have been reflected in the wage-setting process. 

In the September quarter, the earlier decision by the Fair Work Commission (an independent statutory authority in Australia) to mandate at 3.5% increase to the national minimum wage started to flow through. This was below last year's 3.75% increase, and well down from the 5.75% rise determined in its 2023 decision. 

The overall effect of the FWC's 2025 decision gave a modest boost to wages growth in Q3, in line with that from its 2024 decision. Individual agreements and enterprise bargaining agreements - the other drivers of wages growth - also made equivalent contributions to a year ago. 

For private sector jobs, wages growth was 0.7% in the quarter, down from 0.8% in the June quarter. Annual growth eased from 3.4% to 3.2%, now at its slowest pace since the June quarter of 2022. Queensland is the state with the strongest private sector wages growth at 3.7%Y/Y. Switching back to the national perspective, even if end-of-financial-year bonuses are added in, wages growth only lifts to 3.7%Y/Y, on par with its pace 12 months ago.

Further analysis from the ABS found that 47% of private sector jobs saw a wage adjustment (either higher or lower) in the quarter, compared with 49% in Q3 last year. Of those jobs, the average pay rise in Q3 was 3.6%, marking a low since Q4 2021. 

 

In the public sector, although wages growth continued to slow at a quarterly pace coming in at 0.9%, the annual pace continued to rise as it lifted from 3.7% to 3.8% - its fastest since Q2 2024. Backdated pay rises and new state-based enterprise bargaining agreements have seen wages growth in the sector reaccelerate in recent quarters. The clear standout has been Western Australia where wages growth has accelerated by nearly 7% through the year.   

Today's report found that 82% of the rise in public sector wages growth this quarter was driven by state government jobs. 1 in 3 public sector jobs saw a wage adjustment in the latest quarter all told, with the average pay rise being 3.1%.     

From an industry perspective, the full details on wages growth are included in the summary table above. Using these figures, my estimates have wages growth in household services running at around 3.5%Y/Y, down from a peak of around 5% in late 2023. I estimate wages growth in the goods-related and business services segments to be in the low 3s. 

Preview: Wage Price Index Q3

Australia's Wage Price Index (WPI) for the September quarter is due this morning (1130 AEDT). Wages growth has slowed from the peaks of late 2023 amid easing labour market tightness and as lower inflation outcomes have been factored into wage-setting processes. The RBA's forecasts have wages growth remaining on an easing trajectory over the next few quarters. The latest decision from the Fair Work Commission to increase the national minimum wage by 3.5% will start to be reflected in today's report.

September quarter preview: Minimum wage rise a boost to wages growth 

In today's report, headline wages growth is expected to print at 0.8% in the September quarter, with estimates ranging from 0.7-1%. If consensus is met, the annual pace would ease from 3.4% to 3.3%. The September quarter is typically the strongest quarter of the year for wages growth, coinciding with annual wage reviews in the private sector and changes to the minimum wage and awards coming into effect. This year, the Fair Work Commission decided upon a 3.5% increase to the minimum wage, slightly softer than last year's 3.75% rise.

June quarter recap: Wages growth holds steady

The WPI increased by a solid 0.8% in the June quarter, holding the annual pace at an unchanged 3.4%. Wages growth has slowed since peaking in late 2023 (4.2%Y/Y) as tightness in the labour market has eased and inflation has cooled. The RBA went onto to cut the cash rate by 25bps at its August meeting - its third cut of the year - content that the labour market was not a source of inflationary risk; however, the Bank is cautious given unit labour costs remain elevated while productivity growth is relatively weak. 

Public sector wages growth was 1% in the June quarter, following a 1.1% rise in the March quarter. Backdated pay rises and new state enterprise bargaining agreements coming into effect played a key role boosting wages over the first half of the year. Annual growth firmed from 3.6% to 3.7%, outpacing the overall index and the private sector. In the private sector, a 0.8% quarterly rise saw annual wages growth tick up from 3.3% to 3.4%. This is down notably from a peak of 4.2% in late 2023 to early 2024.  

Macro (Re)view (14/11) | Recalibrating outlooks

US equities stabilised after last week's sell-off, supported by the end to the 43-day government shutdown - though concerns over elevated tech valuations remained. European equities rebounded, Asian markets mostly advanced; however, Australia's ASX 200 declined for the third straight week, now around 5% off its late-October highs. Dollar weakness broadened, with the DXY down more than 1% for the week. In fixed income, the gilt market once again became the focus - for all the wrong reasons - amid political uncertainty ahead of the November 26 budget.  

The hawkish repricing of the Australian rates outlook - set in motion by reaccelerating inflation in Q3, and the RBA hinting at an extended pause on the cash rate at 3.6% - continued this week. Employment rediscovered form rising by 42.2k in October, only the second beat on expectations (20k) in the past 6 months and the strongest result since April (full review here). It also outpaced growth in the labour force as the participation rate remained steady but elevated at 67%. As a result, the unemployment rate fell to 4.3%, reversing its shock rise to 4.5% in September - its highest level since late 2021. The swaps curve now implies just a 25% chance of another cut this cycle, down from two 25bps cuts that were fully priced in 4 weeks ago. 

The more hawkish rates outlook also reflects the strength in housing market conditions. Housing finance surged in the September quarter; new lending rose 9.6% in the quarter ($98bn) - fastest rise since mid-2021 - led by the investor segment (17.6%) (see here). A 6.4% lift in underlying loan volumes (141.5k) combined with rising housing prices to drive lending higher. The latter is clearly resonating with homeowners, a key factor that drove a 12.7% jump in consumer sentiment in November, lifting the Westpac-Melbourne Institute Index to its first outright optimistic reading (>100) since early 2022. In the business sector, the NAB Survey reported an improvement in sales and profitability in October, alongside easing cost pressures.

An end to the US government shutdown will start to see the data flow ramp up again from next week. The BLS announced it will publish the September nonfarm payrolls report (previously due October 3) on Thursday. However, reports suggest that the October series for payrolls and CPI are likely to go by the wayside. September payrolls will give the Fed a little more insight going into the December meeting, where sentiment towards a rate cut has waned. That was driven by comments this week from several Fed members that are openly opposing a December cut. 

In the UK, fiscal uncertainty ahead of the Autumn Budget (November 26) sparked renewed volatility in the gilt market. The FT reported that Chancellor Reeves was preparing to scrap income tax rises following less pessimistic forecasts for government revenue from the OBR. Estimates vary according to the reports, but Reeves would still need to implement spending cuts and/or tax increases to adhere to the UK's self-imposed fiscal rules and to meet existing spending promises, raising uncertainty over how that will be achieved. The malaise has also reduced expectations for the scale of further BoE easing, though two 25bps rate cuts are still priced in over the coming year. The first of those could come as early as December, after GDP growth fell short of consensus in Q3 at 0.1%q/q, 1.3%Y/Y and wages growth slowed to a 4.6%yr pace.

Australian employment 42.2k in October; unemployment rate 4.3%

The Australian labour market rediscovered form as the October report beat expectations across the board. Employment increased by 42.2k - its strongest result since April - seeing the unemployment rate fall back to 4.3%, reversing its shock rise to 4.5% last time out. Markets reacted by marking this as the floor for the RBA's easing cycle. The 3-year yield - the most interest-sensitive point on the curve - is up nearly 15bps on the back of today's report to 3.84% - almost 25bps above the current cash rate setting of 3.6%. Pricing a hike as the RBA's next move seems a little premature given the labour market has eased, and temporary factors interrupted with the economy's disinflationary momentum in Q3. Nonetheless, today's report does validate the RBA's decision last week to look through the poor report in September and hold the cash rate steady. 

By the numbers | October 

• Employment advanced by 42.2k in the month, double the expected rise of 20k. This was just the second upside surprise on consensus in the past 6 months. August's gain was downwardly revised to 12.8k from 14.9k. 
• National unemployment fell back to 4.3%, reversing its rise to 4.5% in September and outperforming expectations to print at 4.4%. The underemployment rate (5.9% to 5.7%) and labour force underutilisation (10.4% to 10%) also tightened.  
• Labour force participation held steady at 67%, sitting just below cycle highs, while the employment to population ratio was also unchanged at 64%.   
• Hours worked rose 0.5% month-on-month for the second month in succession, with annual growth lifting from 1.4% to 2.1%.

The details | October 

A much-needed acceleration in employment growth in October saw the unemployment rate rollback from 4-year highs. Employment rose by 42.2k on net in the latest month - full time rising 55.3k as part time fell 13.1k - to post its strongest result since April's 91.1k surge. More evidence will be needed but there are tentative signs that employment is starting to come out of its mid-year slowdown. The 3-month average for employment firmed to 15.1k in October, up from 12.7k in September and 9k in August. 

With the participation rate holding steady at 67%, some 25.2k people joined the labour force in October. As this was far outpaced by the addition of 42.2k people moving into employment, in roads were made into unemployment (-17k). Accordingly, the unemployment rate, which was sitting at its highest level (4.5%) since November 2021 going into today's report, fell back to 4.3%. Increases in underemployment and underutilisation in September were also reversed, suggesting that last month's report was noise rather than signal. Underemployment fell from 5.9% to 5.7%, tightening total underutilisation in the labour force from 10.4% to 10%.  

Rounding out a strong report, hours worked advanced by 0.5% in October and 2.1% over the year. Interestingly, the ABS estimated that hours worked by people in part time roles rose by 0.7% in the month (3.1%yr), that was despite employment in that segment declining. Hours churned out by those working full time lifted by 0.5% month-on-month (1.9%yr). 

In summary | October 

October's increase in employment exceeded even top end of the range of estimates (10-40k) for today's report. That is an encouraging result after employment had clearly slowed through the middle of the year. But the employment data have been volatile in recent times. Markets overreacted to the weak report in September and are probably doing the same now - but in the opposite direction - effectively pricing in a hike as the next move from the RBA whenever it does come. 

Labour market tightness has eased this year: the 3-month average for the unemployment rate is now 4.3%, up from 4% at the start of the year. Although inflation reaccelerated in the September quarter, a range of temporary factors played a role. If inflation does start to fall back - even with labour market conditions remaining broadly as they are - the RBA could still cut again in this cycle. But for the time being, an extended hold looks the most likely course.  

Preview: Labour Force Survey — October

Australia's labour force survey for October is due for release this morning (1130 AEDT). Slowing employment growth over recent months culminated in the national unemployment rate rising to 4.5% in September, its highest level in nearly 4 years. This initially elevated expectations for an RBA rate cut at the November meeting, only to be derailed by a stronger-than-expected rise in inflation in the September quarter. With the RBA subsequently reaffirming that policy is being driven by the inflation side of its dual mandate, markets have provisionally called time on the easing cycle; however, continued softening in the labour market would likely prompt a reappraisal of that view.   

October preview: Conditions expected to stabilise

Markets are largely sitting on the fence going into today's report. Employment is expected to rise by 20k (range: 10-40k), broadly in line with the average expectation (24k) since the March report, following a 14.9k rise in September. After lifting from 4.3% to 4.5% last time out, some retracement is anticipated in the unemployment rate, expected to ease back to 4.4% (range: 4.3-4.5%). Going on recent form, risks appear tilted to the upside for the unemployment rate, due to subdued momentum in employment and near record high labour force participation.

September recap: Unemployment rises to 4-year highs 

Headline unemployment rose unexpectedly to 4.5% in September from an upwardly revised 4.3% in August. This was the highest single reading since November 2021, lifting the quarterly average to 4.3% - also a high back to late 2021. In addition, increases in the underemployment rate from 5.7% to 5.9% and in labour force underutilisation from 10% to 10.4% were indicative of a broader softening in labour market conditions.

Factors on both the demand and supply side played a role in the rise in unemployment. For the 4th time in the past 5 months, employment disappointed expectations lifting by 14.9k (vs 20k) in September - though it more than recouped the decline seen in August (-11.9k). Full time (8.7k) and part time (6.3k) contributed modest gains to employment. 

On the supply side, the participation rate picked up from 66.9% to 67%, adding almost 50k people to the labour force. Because this far exceeded the gain in employment, the unemployment rate moved upwards. Nonetheless, the employment to population ratio - the share of people in work - remained steady at its elevated level (64%). 

Hours worked for September were up 0.5% and rose by 1.4% over the year. In recent times, hours have been volatile from month to month, but over the September quarter total hours were flat compared to the June quarter. 

Australian housing finance surges in Q3

Conditions in the Australian housing market continued to heat up in the September quarter, with lending commitments and loan volumes surging. An RBA rate cut in August, following earlier cash rate reductions, looks to have been a key factor. Activity in the investor segment was especially strong, but the owner-occupier segment was also robust. The first home buyer segment will undoubtedly see a boost in the December quarter from the Federal Government's 5% Deposit Scheme. Despite ABS data previously indicating that housing completions slowed sharply - down around 10% through the first half of the year - lending for new stock was especially strong in the quarter.     

Housing finance commitments accelerated by 9.6% in the September quarter - the fastest rise seen in 4½ years - to a record high level ($98bn). Although rising housing prices are an affordability constraint for many, demand picked up in the quarter, with loan volumes rising 6.4% (141k) to post their largest increase in more than a year. Demand was supported by the RBA lowering the cash rate by 25bps in August, bringing cumulative easing delivered since the start of the year to 75bps. 

Activity in the investor segment was the key driver. Lending ripped 17.6% in the quarter to land at a new cycle peak just short of $40bn. The nation's financial institutions wrote 57.6k new loans to investors in the period - the most on record in a single quarter - to mark a 13.6% increase on the June quarter. As the summary table above shows, activity right across the segment was strong, but notably so in the construction-related area. 

Owner-occupier lending increased by 4.7% to $58.2bn, its highest level since the peak in early 2022, on the eve of the RBA's tightening cycle. That increase was more the double the rise seen in underlying loan volumes, which increased by 2% to 83.8k. This leaves a basic interpretation of the effect of rising housing prices, where the pace of lending rose by more than the growth in demand. As with investors, demand for new stock was a key factor.  

Macro (Re)view (7/11) | Equities step back

Risk-off sentiment weighed on equity markets this week due to elevated tech sector valuations; the ongoing US government shutdown; and uncertainty over the Fed cutting rates in December amid concerns over the health of the US labour market. The tech-heavy Nasdaq saw its largest weekly fall since early April in the wake of Liberation Day, and the broader S&P 500 was down by its most in a month. While the US dollar has of late reconnected with its safe-haven status, that trade lost some momentum this week. Treasury yields were little changed across the curve.

Domestically events this week were led by the RBA's latest policy meeting. The Monetary Policy Board (MPB) surprised no one in leaving the cash rate at an unchanged 3.6% following a stronger-than-expected upturn of inflation in Q3. My review (see here) covers the meeting in more depth, but the key take away was that the MPB looks to have set the stage for an extended pause. 

Upward revisions to the RBA's inflation forecasts in the latest Statement on Monetary Policy, and the expectation that the full effects of its earlier rate cuts (75bps in total) are still playing out, has the MPC taking a cautious stance. At the post-meeting press conference, Governor Bullock said some of the recent rise in inflation was likely due to temporary factors, but inflation had also lifted in housing construction and market services - components where inflation has been more persistent. Markets lean towards the RBA cutting once more in this easing cycle, but not until well into next year. 

A range of Australian data points came through during the week. Household spending slowed to a 0.2% rise in September, while underlying volume growth softened in the quarter (see here). Dwelling approvals saw a sharp 12% rebound in September but still remain at subdued levels despite RBA easing and accelerating housing price gains (see here). Surging non-monetary gold exports (62.2%) amid record high prices and safe-haven demand saw the trade surplus widen to $3.9bn in September from a 7-year low in August (see here).  

The continuing government shutdown in the US deprived markets of the October payrolls report, amplifying the focus on alternative indicators to gauge the health of the labour market. Although, ADP payrolls (+42k) outperformed expectations, markets appeared more concerned about a surge in layoffs (153k) in the Challenger series. Although the Fed has articulated its focus is on the employment side of its mandate, markets are struggling to gauge the level of softening it would need to see in the labour market to justify a December rate cut, due to the lack of hard data and varying views on policy by FOMC members. 

In the UK, the Bank of England's Monetary Policy Committee (MPC) left Bank Rate on hold at 4% this week. The decision proved to be tight. Members Ramsden and Breeden crossed over to join Committee doves Dhingra and Taylor in voting for a 25bps cut, leaving the 'hold' bloc on the slimmest majority possible (5). That bloc includes 4 members with strongly held views around upside risks to inflation in the UK: Greene, Lombardelli, Mann and Pill, plus Governor Bailey.   

But Bailey is not far off voting to cut rates according to his summary views - a new section now included in the meeting minutes where each MPC member outlines their key thoughts on economic conditions and policy. For Bailey, if the incoming data confirms his view that inflation risks are now 'less pressing', his position is that 'further policy easing' would be appropriate.

While much has been said and written about the divisions over at the Fed, the BoE is arguably even more divided. The BoE's central forecasts in its Monetary Policy Report were little changed from its previous update in August; however, each MPC member attaches different weightings to the various risks the UK economy is facing, resulting in alternative views over the path for interest rates. There was also a sense at this meeting that the government budget to be tabled later this month will be a key part of the puzzle.  

At the post-meeting press conference, Bailey said that the judgment of the MPC is that inflation has now peaked, following an uptick over the past year or so. But given headline CPI is 3.8% and underlying CPI is 3.5% - both well above the 2% target - a key risk was that inflation fails to fall back on the BoE's expected trajectory. At the same time, however, Bailey pointed to weak momentum in the economy and a slowing labour market, dynamics that pose risks to inflation falling below target. 

Australia's trade surplus rebounds in September

Australia's goods trade surplus rebounded to $3.9bn in September, broadly in line with expectations ($4bn) after falling to a 7-year low of $1.1bn in August. Exports (7.9%) increased at multiples of the rise in imports (1.1%), driven by non-monetary gold (62.2%) amid record high prices and strong demand for the safe-haven commodity.    

The trade surplus widened from a 7-year low in August ($1.1bn) to $3.9bn in September, averaging $3.8bn across the quarter. The monthly trade figures through 2025 have been highly volatile, reflecting developments in underlying global trade flows as the US administration has brought its regime of broad-based tariffs to fruition. 

On a quarterly basis, the goods surplus increased to $11.4bn from $10.7bn in the June quarter, a rise of 7%. This came on the back of exports expanding by 1.9% to $131bn, outpacing a 1.4% lift in imports to $120bn. Given the movements in trade prices in the quarter: exports -0.9% and imports -0.4%, goods trade looks to have broadly neutral implications for GDP growth in Q3. Trade in services - not captured in these data - will largely determine how the net exports component has contributed to quarterly GDP.  

To the monthly figures and exports rose at pace in September, up 7.9% from August - the sharpest month-on-month rise since April 2022 - to $44.6bn. Annual growth swung from -4% to 9.7% on September's result. Record high prices and strong demand underpinned a 62.2% surge in non-monetary gold exports, after the commodity inexplicably declined in August (-47.2%). Much of the growth in exports over the past year has come from non-monetary gold (included in the grey bars in chart below). 

Export growth in September was also supported by iron ore seeing its fastest rise (9.7%) since the start of 2023, while coal (4.1%) and metals exports (14.1%) advanced. Overall, non-rural goods lifted by 3.7% in September, more than rebounding from August's 2.9% decline. Rural goods rose slightly in the month (0.7%), with meat (2.7%) the key driver.    

Import spending slowed to a 1.1% rise in September ($40.6bn) from a 3.3% gain in August; however, annual growth increased from 8.2% to 11.1% - its fastest pace since February 2024. September's rise in imports was driven entirely by capital goods (6.7%), with declines coming through in consumption (-1.2%) and intermediate goods (-0.4%).    

RBA on hold in November

The RBA left the cash rate on hold at 3.6% at today's meeting in Sydney. The decision was straightforward as the Monetary Policy Board (MPB) voted unanimously to hold after inflation came in 'materially higher' than it had expected in the September quarter, reaccelerating towards the top of the 2-3% target band and prompting the RBA to raise its inflation forecasts for the coming year. The sense is the MPB is setting up for an extended pause. Having already been cut by 75bps since the start of the year, the MPB has got the cash rate closer to a neutral setting where it will move cautiously. With risks to domestic growth and inflation seen as balanced, Governor Bullock highlighted the importance of retaining optionality to respond to the incoming data. Markets see one further cut to the cash rate in this easing cycle as the most likely scenario.   

Australia's Q3 inflation report was by far the most influential development for the MPB since its previous meeting in late September. Inflation rose more steeply than the RBA had been expecting in the quarter, seeing headline CPI jump from 2.1% to 3.2%Y/Y while trimmed mean or core CPI lifted from 2.7% to 3%Y/Y. At the post-meeting press conference, Governor Bullock said that while temporary factors - such as electricity rebates and council rates - were at play in Q3, more persistent price pressures in areas such as housing construction and market services were also part of the story.   

On the back of these upside surprises, the RBA raised its inflation outlook in today's Statement on Monetary Policy. It now sees headline CPI ending 2025 at 3.3% (up from 3%), 3.2% in 2026 (from 2.9%) and then 2.6% in 2027 (from 2.5%). Core CPI for 2025 was upped to 3.2% from 2.6% before easing back to 2.7% in 2026 (from 2.6%) and then 2.6% in 2027 (from 2.5%). 

Importantly, the MPB is also taking some signal from the inflation data about economic conditions more broadly. Because inflation lifted and is above the midpoint of the target band, the MPB judges that demand continues to outweigh supply in the economy, with tightness remaining in the labour market. While the earlier rate cuts have already supported household spending and the housing market, the MPB believes that there is more to play out. 

That is reflected in the growth outlook that has lifted from 1.7% to 2% this year. While there was a downgrade to growth next year from 2.1% to 1.9%, the forecast for 2027 remained at 2%. With the outlook for resilient growth remaining intact, the RBA sees little further softening in the labour market. Forecast unemployment has ticked up from 4.3% to 4.4% across the projection horizon. The next RBA monetary policy meeting is set for 8-9 December.