Australia's Wage Price Index for the March quarter is due to be published by the ABS later this morning (11:30am AEST). The data tracks changes in hourly rates of pay for a set group of jobs and is influenced by factors such as changes to minimum wage settings, award variations, enterprise agreements and contracts (or other informal agreements) between employees and employers. Wages are still recovering from the depths of the pandemic when many firms implemented temporary cuts and freezes, though underlying conditions in the labour market suggest more sustainable increases in wages are likely to be some way off.
As it stands | Wage Price Index
To recap, the WPI surprised to the upside of expectations in the December quarter rising by 0.6% against a 0.3% lift expected. The key factor driving the positive surprise was the reversal of short-term wage cuts in higher paid senior executive jobs. Abstracting for this, the ABS's exclusion-based measure (which removes the impacts of pandemic restrictions and then their subsequent relaxation on wages) showed that 'underlying' wages growth was 0.3% in the quarter. In through-the-year terms, growth in the WPI advanced ever so slightly from 1.36% to 1.42%, leaving the pace around record lows.
With the economy rebounding strongly since the reopening, the removal of wage cuts and freezes led to private sector wages lifting by 0.67% in the quarter, up sharply from a 0.08% pace in Q4. Annual growth in the index increased from 1.21% to 1.36%. Wages in the public sector remained contained at 0.29% in the quarter and 1.61% through the year, with widespread wage freezes holding down increases there.
The industries that saw the strongest growth in wages in the quarter were in professional services (1.21%q/q, 1.52%Y/Y) and administrative and support services (0.86%q/q, 0.83%Y/Y), with both rebounding from earlier falls associated with wages freezes and cuts.
Market expectations | Wage Price Index
In the March quarter, markets expect the WPI to have risen by 0.5% (range: 0.4% to 0.7%); an outcome that would see the annual pace hold broadly steady around record lows of 1.4%.
What to watch | Wage Price Index
The recent RBA May Statement on Monetary Policy reported that more firms in the Bank's liaison program had unwound temporary wage cuts since December. With the adjustment back to pre-pandemic levels still occurring, there is the potential for another upside surprise today in quarterly WPI growth. However, underlying wages growth is likely to remain subdued for some time as spare capacity in the labour market remains elevated. The measures in last week's Federal Budget and the RBA's policy settings are both calibrated around supporting a return to full employment.
