Australia Q4 Wage Price Index: 0.5%qtr, 2.2%yr

Australian wages growth remains well-contained rising by 0.5% in the December quarter and 2.2% through the year, in line with consensus forecasts. Wages growth in annual terms in the private sector eased to its slowest in more than a year at 2.16%, while public sector wages growth weakened to a 3-year low at 2.25%. Despite relatively robust employment growth through 2019, little progress was made in lowering spare capacity, thus keeping wage inflation in check.   

Wage Price Index — Q4 | By the numbers

• The headline WPI (total hourly rates of pay ex-bonuses) increased by 0.53% in Q4 meeting the consensus forecast of 0.5% and unchanged from the previous quarter.
• Annual growth held steady at 2.22% (prior: 2.23%), as expected.

Wage Price Index — Q4 | The details 

The ABS's WPI is a measure of wage inflation tracking changes in hourly rates of pay for a fixed group of jobs and is affected by minimum wage settings, variations in awards, enterprise and workplace agreements and individual contracts. The index adjusts for characteristics of employees, such as qualifications, hours worked and type of work performed.

For the third straight quarter, the WPI lifted by 0.53% as the annual pace remained subdued at around 2.2%. Private sector wages saw a 0.53% rise in Q4, though a base effect resulted in the annual pace easing from 2.25% to 2.16% to its softest since Q3 2018. The public sector recorded a 0.44% increase in Q4 — its weakest quarterly outcome since Q1 2000 — as annual growth pulled back from 2.49% to 2.25% to a 3-year low.

Adjusting for inflation (headline CPI was 0.7% in Q4), today's outcome implies that real wages growth fell in the December quarter, though it remains in slightly positive territory over the year. 

The WPI including bonuses measure was little more than flat in Q4 (0.07%) slowing annual growth from 2.83% to 2.21% to a 2-year low. Following a strong rise of 1.4% in Q3, private sector wages including bonuses saw no growth this quarter and as a result, the annual pace stepped down from its near 7-year high of 3.0% to 2.29%. In the public sector, wages including bonuses lifted by a modest 0.44% in the quarter; the through the year pace moderating from 2.41% to 2.25% to a 3-year low. 

  

On an industry-wide basis, the table below provides the quarterly and year-on-year outcomes for the WPI (all sectors, excluding bonuses). 

Over the year ending Q4, wages growth outpaced the national average in just 4 industries; healthcare (3.06%), utilities (2.87%), transport (2.37%) and professional services (2.33%). That number is down from 5 industries over the year to Q3. 

If we look at wages growth across industries over the year to Q4 2019 compared their paces over the year to Q4 2018, we see that the pace of wages growth has risen from year to year in only 5 industries, which was led by mining (from 1.79% to 2.22%), healthcare (from 2.84% to 3.06%), professional services (from 2.14% to 2.33%), utilities (from 2.79% to 2.87%) and information media and telecommunications (from 1.59% to 1.65%). The largest pullbacks came from education and training (down from 2.59% to 1.93%), public administration and safety (down from 2.64% to 2.04%) and arts and recreation (down from 2.73% to 2.2%).      

   

Turning to the states, the cross-sector breakdown is provided in the table, below. Victoria retains the strongest overall pace of wages growth (2.66%yr) despite easing from the previous quarter (2.76%yr) and experiencing softer labour market conditions over the year compared to 2018. Private sector wages growth continues to be led by Tasmania (2.73%yr), while in the public sector Victoria remains well out in front (3.5%yr) reflecting earlier efforts by the state government to re-calibrate wages for healthcare workers. Wages growth in New South Wales remains moderate at best, as underutilisation in the state increased from 12.0% to 12.4% over 2019.  

The annual pace of wages growth for each state is shown in the chart, below. 

Wage Price Index — Q4 | Insights

There were few surprises in today's report. Overall, wages growth in Australia remains well-contained and is consistent with a labour market with an elevated level of spare capacity, which is despite relatively robust employment growth in 2019. We need to remember that today's outcome was also boosted by the Fair Work Commission's decision to lift the minimum wage by 3.0% through the year, effective from Q3 onwards. But, aside from that, the industry breakdown confirmed the weakness in underlying momentum. A much tighter labour market is clearly needed to lift the pace of wages growth to a level that is consistent with inflation returning to the Reserve Bank of Australia's 2-3% target. However, as the Bank has been commenting recently, it is now balancing the potential benefits of further monetary policy easing with the side effects of the risks posed to financial stability through additional borrowing. A deterioration in the labour market is the key to further easing and we receive the first update on conditions therein for 2020 tomorrow.