Preview: Wage Price Index -- Q2

Australia's Wage Price Index (WPI) for the June quarter is due to be released by the ABS at 11:30am (AEST) today. The WPI measures the change in price of wages and salaries paid by employers of all types for a fixed group of jobs keeping constant all compositional factors, such as responsibilities, experience, qualifications and hours worked. Wages growth has a key influence on growth in household disposable income, which in turn drives the outlook for household consumption; the largest component of the domestic economy and the area currently identified by the Reserve Bank of Australia as posing the most uncertainty for its outlook.     


As it stands | Wage Price Index

The pace of wages growth remains subdued after the headline WPI increased by a softer-than-expected 0.5% in the March quarter to keep the annual pace at around 2.3%. Both outcomes were unchanged from Q4 in 2018. At the sector level, private sector wages growth came in at 0.5% to lift the annual pace from 2.3% to 2.4%, and while the quarterly pace in the public sector was also 0.5% growth through the year eased from 2.5% to 2.4%. 

Including bonuses, growth in the headline index posted a 0.5% rise in Q1 slowing the annual pace from 2.8% to 2.6%. For the private sector, growth in Q1 at 0.5% was noticeably softer than in the previous quarter, which resulted in the through-the-year pace falling from 2.8% to 2.6%. In the public sector, Q1's outcome of 0.5% saw the annual pace slow to 2.4% from 2.5%. 

To read our full review of Q1's report see here

  

Market expectations | Wage Price Index

Today's report is expected to show the WPI made little progress over the June quarter. According to Bloomberg, the median forecast is for the index to rise by 0.5% in Q1 between a tight range of estimates from 0.5% to 0.6%. The annual pace is expected to remain at 2.3%, though individual estimates vary between 2.1% and 2.4%. 

The economy added a net 87,700 jobs in Q2 -- a decent increase from Q1's total of 67,400 -- with the annual pace of employment growth remaining the same as it was at the end of the March quarter at a robust 2.4%. However, workforce participation continued to rise over the quarter reaching its highest level on record at 66.0% in June. As a result, the unemployment rate drifted up from 5.1% at the end of March to 5.2%, while over that time the underemployment rate remained at 8.2% and the underutilisation rate lifted from 13.3% to 13.4%. Aside from spare capacity in the labour market, the pace of wages growth has also likely been restricted by structural factors, such as subdued productivity growth and the increased digitalisation and globalisation of the workforce. The recent decision from the Fair Work Commission to raise the national minimum wage by 3.0% takes effect from the start of Q3 so will not be reflected in today's report.


What to watch | Wage Price Index

The state-level data are always worth watching in this release. Labour market conditions vary considerably across the nation, with the two most populous states of New South Wales and Victoria leading the way over the past year or so in terms of employment growth and progress in reducing their unemployment rates, though that has failed to rev up wages growth. More recently, the unemployment rates in those states have lifted and noticeably so in New South Wales. In the other states, labour market conditions have been on the improve in Western Australia but have weakened in Queensland, South Australia, and Tasmania. Given these dynamics, it is difficult to see an acceleration in national wages growth for the foreseeable future, as highlighted by last Friday's Statement on Monetary Policy from RBA which forecasts growth in the WPI remaining at 2.3% in 2019 and 2020, rising only to 2.4% in 2021 (see here).