Wage Price Index — Q3 | By the numbers
- The headline WPI (total hourly rates of pay ex-bonuses) increased by 0.53% in Q3 to match the consensus outcome (+0.5%), though Q2's initially reported increase of 0.61% was revised down to 0.53%.
- Annual growth in the WPI slowed, as expected, from an unrevised pace of 2.33% to 2.23%.
Wage Price Index — Q3 | The details
By way of background, the ABS's Wage Price Index (WPI) measures the change in price of wages and salaries paid by employers for a fixed group of jobs, unadjusted for compositional characteristics of employees (role responsibilities, experience, qualification levels, hours worked etc). As such, the WPI reflects underlying factors influencing wages growth, such as changes in individual and enterprise bargaining agreements and in minimum wage settings and awards.
The headline WPI (excluding bonuses) increased by 0.53% over the 3 months to September, with the annual pace easing from 2.33% to 2.23%, as a 0.62% rise from Q3 2018 fell out of the 4-quarter calculation. The public sector drove this slowdown, with wages rising by 0.52% in Q3 compared to a 0.82% rise in the June quarter that was associated with a once-off recalibration for healthcare workers in Victoria. Thus, public sector wages growth in annual terms eased from 2.58% to 2.49%. In the private sector, the outcomes in the September quarter of 0.53% quarter-on-quarter and 2.25% year-on-year were essentially unchanged from Q2.
Adjusting the headline WPI for inflation (as measured by the Consumer Price Index) implies that real wages growth softened slightly for the second straight quarter, but it remains positive overall.
The WPI inclusive of bonuses showed a strong rise of 1.28% in Q3, to lift the annual pace from 2.47% to 2.83%. The private sector drove this increase with a 1.44% acceleration in Q3, which boosted the annual pace from 2.41% to 3.0% — its strongest rate in nearly 7 years. In the public sector, wages including bonuses increased by a more moderate 0.74% for the quarter, as the annual pace slowed from 2.51% to 2.41%.
On an industry-wide basis, there were 5 industries that recorded a faster pace of wages growth over the past year than the headline index, with those being; healthcare +3.23%, utilities +2.73%, transport +2.54%, professional services +2.5% and arts and recreation +2.45%. This is is down from a total of 8 industries that outperformed the WPI over the year to Q3 in 2018. The industries that saw the sharpest slowdown in wages growth over the past year were; education -0.59ppt, manufacturing -0.43ppt and wholesale trade -0.43ppt. The strongest increases from year to year came from; professional services +0.51ppt, healthcare +0.45ppt, and transport +0.26ppt.
Across the states, Victoria led the way with a 2.8% year-on-year rise, while next best was the Australian Capital Territory at 2.5% followed by South Australia (2.3%) and Tasmania (2.3%). New South Wales and the Northern Territory were in line with the headline index at 2.2%, while Queensland (2.1%), Western Australia (1.6%) lagged behind. Private sector wages growth was strongest in Tasmania at 2.7%, while Victoria is well out in front for public sector wages growth at 2.9% and is indeed the strongest segment nationally.
Wage Price Index — Q3 | Insights
Today's report matched market and the RBA's expectations, with wages growth remaining well contained after easing to around a 2.2% annual pace. We also need to bear in mind that the quarterly outcome of 0.5% was boosted by the Fair Work Commission's recent decision to lift the minimum wage by 3.0% for the year, as well as by other recently approved Enterprise Bargaining Agreements in the retail industry. As has been widely discussed by the RBA, spare capacity in the labour market has been a key influence in holding back the pace of wages growth (see chart, below), though there have also been other headwinds from weak productivity growth and a more globally mobile workforce. The forecasts in the Bank's quarterly Statement on Monetary Policy that was released last week indicated that this spare capacity is expected to persist for at least the next couple of years, with wages growth also remaining subdued. The Board currently appears to be in wait-and-see mode after cutting the cash rate 3 times this year, but today's result underscores that further easing is likely in 2020, with a much tighter labour market required to lift wages growth and see inflation return to the 2-3% target band.
