Wage Price Index — Q3 | By the numbers
- WPI (total hourly rates of pay ex-bonuses) increased by 0.62% in Q3 (exp +0.6%, prior rev +0.55% — a downgrade from the initial estimate of +0.62%)
- Annual growth in the WPI also met market expectations at +2.29% — a slight increase from the +2.14% pace in Q2
*click charts to expand
Wage Price Index — Q3 | The details
The WPI is effectively a measure of wage inflation in the Australian economy. It is the primary measure which shows price changes employers pay for labour associated with particular jobs, removing the impact of quantity and quality of work, rather than the growth in income received by employees.
In Q3, the headline result showed that the WPI expanded by 0.62% to an annual pace of 2.29%, which is the fastest since March 2015. Breaking this down, the public sector continues to lead the index, with quarterly growth at 0.61% and an annual rate of 2.47%. This compares to the private sector at 0.55% in Q3 to 2.14% over the year.
Analysis by the Australian Bureau of Statistics (ABS) showed that the Fair Work Commission's increase to the national minimum wage of 3.5% for 2018, which was stronger than in recent years, made a sizeable contribution to growth in the WPI in Q3. Updated national minimum wage increases are effective from the start of Q3 each year. Basic-level calculations suggest that if this impact was removed, underlying growth in the WPI was tracking at around 2% in annual terms.
What appears to be becoming more evident is that businesses are using bonuses in efforts to assist in staff retention while keeping growth in wages in check. The WPI measures including bonuses continued to lift in Q3 in both the private and public sectors.
Looking across the industries, the momentum is split with equal numbers of industries where wages growth is either below or above the national headline rate of 2.29%. Wages growth remains strongest in the healthcare sector, which has also experienced strong employment growth in line with the rollout of the Federal government's National Disability Insurance Scheme. At the other end of the scale, mining was able to lift off the floor of the table, possibly a reflection of increased profitability in the sector following surging commodity prices.
Analysis of the state-level WPI data is presented in the chart, below. An important point to note is that growth in public sector wages outpaces that in the private sector in New South Wales, Victoria, Queensland, and South Australia. Tasmania is the only state where this trend is reversed.
Wage Price Index — Q3 | Insights
The pace of Australian wages growth remains subdued indicating that further strengthening in the labour market will be required to help drive stronger increases. While the nation's unemployment rate declined to its lowest in more than 6 years at 5% — historically considered to be around the level of full employment — in September, broader measures of labour market underutilisation remain elevated.
Recent global experiences, particularly in the US, have suggested that unemployment rates have had to decline well below previously estimated levels of full employment to generate strong rates of wages growth, so this is also likely to be the case for Australia. This appears to be consistent with the Reserve Bank of Australia's expectations, with their commentary continuing to highlight that it anticipates that stronger wages growth will occur only gradually as labour market conditions tighten. The ABS will release its Labour Force Survey for October tomorrow (15/11).
