Preview: Wage Price Index Q4

The December quarter update of the Wage Price Index (WPI) is due to be released by the ABS at 11:30am (AEDT) today. The WPI is a measure of wage inflation reflecting changes in rates of pay linked to minimum wage settings, variations in awards, enterprise and workplace agreements and individual contracts. While employment growth was robust in 2019, strength in workforce participation meant that spare capacity persisted in the labour market, likely keeping wages growth contained.     

As it stands | Wage Price Index

Wage inflation remained contained in the September quarter with the WPI matching expectations in rising by 0.5%, which followed a downwardly revised increase of 0.5% in Q2. The annual pace slowed from 2.3% to 2.2%, as expected (for a complete review see here). 

Following a once-off recalibration for healthcare workers in Victoria in Q2, public sector wages growth eased in Q3 from a 0.8% pace to 0.5%, resulting in the annual pace moderating from 2.6% to 2.5%. Wage inflation in the private sector held steady at 0.5% in the quarter and 2.3% over the year.

In a sign that firms are looking to use bonuses as a means of retaining staff while keeping wages growth contained, the WPI including bonuses measure lifted by 1.3% in Q3, driving the annual pace up from 2.5% to 2.8%. Private sector wages including bonuses increased by 1.4% in the quarter as annual growth accelerated from 2.4% to 3.0% to its fastest in almost 7 years. The public sector saw a more moderate 0.7% rise in Q3, while annual growth eased from 2.5% to 2.4%. 

Market expectations | Wage Price Index

The median forecast compiled by Bloomberg is for the WPI to rise by 0.5% in the December quarter, around a range of individual estimates from 0.5% to 0.6%. Thus, the annual pace is expected to be maintained at 2.2% (range: 2.1% to 2.3%). 

What to watch | Wage Price Index

Expect to see another subdued outcome in today's release. In 2019, employment growth was robust at 2.1% and clearly outpaced growth in the working-age population at around 1.6%. However, the workforce participation rate stepped up over the year from 65.7% to 66.0%, which meant that little headway was made in lowering spare capacity in the labour market, with the unemployment rate ending 2019 at 5.1% compared to 5.0% at the end of 2018, while underemployment and underutilisation were unchanged through the year at 8.3% and 13.4% respectively. Outside of Q3's minimum wage increase (3%), which can also affect workers on Enterprise Bargaining Agreements, underlying wage inflation looks to remain well contained.