Australian Q2 Wage Price Index 0.2%;1.8%yr

The onset of the pandemic and the dislocation that resulted in the labour market saw the pace of Australian wages growth slide to record lows in the June quarter. Wages growth was already slowing ahead of the pandemic and is now likely to weaken further and remain there for longer given the severity of the shock to the economy.  

Wage Price Index — Q2 | By the numbers

• The headline WPI (total hourly rates of pay ex-bonuses) saw a softer-than-expected increase of just 0.2% in the June quarter (consensus was at +0.3%), which is its weakest quarterly outcome on record, after a 0.5% rise in Q1.
• Annual growth slid from 2.2% to a record low of 1.8%, below the median forecast for 1.9%. 

Wage Price Index — Q2 | The details 

The WPI is a measure of wage inflation tracking changes in hourly rates of pay for a fixed group of jobs. Factors that can impact the WPI include minimum wage settings, variations in awards, enterprise and workplace agreements and individual contracts, however it is not impacted by the Federal Government's JobKeeper (wage subsidy) policy as it falls outside its scope of measurement. The ABS advises that it will release separate indexes that capture that impact over the next month. 

Wages growth was expected to pullback in Q2 in response to the upheaval in the labour market as shutdowns and ongoing social distancing restrictions led to the loss of around 660k jobs and a contraction of around 8.5% in total hours worked in the three months to June. The pullback that occurred seems broadly in line with expectations, though the RBA held a more pessimistic forecast (1.75%Y/Y) than the market (1.9%Y/Y). The headline WPI lifted by 0.22% in Q2 as the pace through the year slowed to 1.82%, with both at record lows. There was a severe slowdown in private sector wages to 0.08% in Q2 (from 0.53% in Q1) as the annual pace rolled over to a record low of 1.68% from 2.15%. Public sector wages growth was unchanged on the quarter at 0.58%, as a base effect slowed to the annual pace to its weakest on record at 2.14% from 2.39%. 

The table below shows the changes across the sectors for the quarter and over the year. Several industries saw wage deflation in Q2 including 'other services' (-0.9%), professional, scientific and technical services (-0.45%), construction (-0.45%), while much more modest falls came through from accommodation and food services (-0.08%), wholesale trade (-0.08%) and rental, hiring and real estate services (-0.08%). In annual terms, wages growth in the construction industry slowed by 1ppt in Q2 to a record low of 0.76%.    

Compared to a year earlier, annual wages growth has pulled back across every measured industry in the domestic economy. A broad-based slowdown in wages growth was already underway ahead of the pandemic, with its onset now worsening that earlier dynamic. The slowdowns have been sharpest in 'other services' (from 2.44% to 1.07%), construction (from 1.86% to 0.76%), professional, scientific and technical services (from 2.36% to 1.31%) and health care and social assistance (from 3.27% to 2.43%). 

  

The details across the states are shown in the table below. Wages growth slowed in the June quarter in New South Wales, Victoria, Queensland and Western Australia and held steady in South Australia and Tasmania. The weakness was most notable in Victoria (-0.07%qtr) as wages growth in its private sector contracted by 0.22% in the quarter. Wages growth in New South Wales flatlined as the pace of private sector wages growth hit record lows.  

Wage Price Index — Q2 | Insights

With wages growth in the Australian economy already losing momentum ahead of the pandemic, its onset is likely to lock in a period of lower for longer wage inflation in response to the highly elevated level of capacity in the labour market. In last week's quarterly Statement on Monetary Policy, the RBA materially downgraded its outlook for wages growth slowing to around 1.25% by the end of the year and remaining at that level through 2021.