The June quarter update of the Australian Wage Price Index is scheduled to be released by the ABS this morning (11:30am AEST). Measuring changes in hourly rates of pay for a fixed group of jobs, the Wage Price Index (WPI) is driven by minimum wage settings, changes in award rates, enterprise agreements and individual arrangments between employees and employers. Wages growth slowed to record lows last year as both the private and public sectors responded to the pandemic by delaying increases and implementing wage freezes. With these measures now unwinding, wages growth is recovering but the pace remains modest and is uneven across the economy.
As it stands | Wage Price Index
Going back to the March quarter, the WPI came in slightly ahead of consensus at 0.6%, matching pace with the outcome in the December quarter (reviewed here). The driving factors behind wages growth in Q1 were individual agreements and enterprise agreements as strength in underlying economic conditions allowed firms to revisit wage reviews that had been postponed. The decision by the Fair Work Commission to phase in the introduction of the minimum wage increase to help ease pressure on industries struggling with the pandemic continued. Annual growth in the WPI firmed from 1.4% to 1.5%.
Wages growth in the private sector lifted by 0.6% in Q1 following on from the 0.7% rise in the previous quarter as the reversal of temporary wage cuts and freezes continued. The WPI measure including bonuses posted a stronger rise to be up by 0.8% in Q1, reflecting the contribution from sales commissions with consumer demand strong as well as non-wage strategies by firms to retain or attract staff. Annual growth in private sector wages was little changed around 1.4% but lifted from 1.2% to 1.9% for the measure including bonuses. For the public sector, wages growth was steady at a 0.4% quarterly pace, though the annual rate eased from 1.6% to 1.5% to a new record low.
The strongest rates of wages growth were in some of the industries hit hardest by the pandemic. This reflected the later phasing in of the 2019/20 minimum wage increase for these industries. Wages growth in accommodation and food services was 1.2% in the quarter, while wages in retail trade (0.6%) and other services (includes tourism) (0.7%) advanced over the period.
Market expectations | Wage Price Index
For the June quarter, the median estimate is for the WPI to rise by 0.6% between a tight range of estimates from 0.5% to 0.7%. Should the median estimate be realised, annual wages growth would rise from 1.5% to 1.9%, with the base period coinciding with the depths of the pandemic 12 months earlier.
What to watch | Wage Price Index
Insights from the recent RBA Statement on Monetary Policy suggested that many businesses were turning to non-wage increases such as bonuses and flexi-working arrangements to retain and hire new staff rather than lifting base wages, which would lock in a higher cost base. With job vacancies at highly elevated levels and many businesses reporting difficulties in finding staff, this is a key area to watch and will be reflected in the private sector WPI inclusive of bonuses measure. More generally, wages growth should continue to recover in line with the significant improvement in labour market conditions with the unemployment rate lower than prior to the pandemic, while employment levels have recovered their significant falls seen last year. However, the recent setbacks with the virus have raised uncertainty over the near-term trajectory.
