Australia's Wage Price Index (WPI) for the September quarter is due to be released by the ABS at 11:30am (AEDT) today. The WPI measures wage inflation for employers in the Australian labour market. As RBA Governor Philip Lowe noted in his speech yesterday, with wages growth seen as "one of the guideposts" to meeting the target of sustainable 2-3% inflation this series carries a lot of weight going forward. The reversal of temporary wage cuts and freezes implemented early in the pandemic and the recovery in the labour market has seen wages growth rebound from the depths of 2020 over recent quarters. In today's report, annual growth in the WPI is expected to have returned to its pre-pandemic pace at a little above 2% despite the Delta lockdowns.
As it stands | Wage Price Index
In the June quarter, the WPI printed below consensus estimates rising by 0.4%q/q to be 1.7% higher through the year. After slowing sharply in 2020 to a record low by Q3, annual growth in the WPI has lifted over recent quarters as temporary wage freezes and cuts implemented at the outset of the pandemic have been reversed. However, the WPI was still yet to recover to its pre-pandemic pace.
The private sector WPI increased by 0.5% in Q3, moderating from the pace in the previous two quarters. Annual growth firmed from 1.4% to 1.8%. For the third consecutive quarter, growth in the public sector WPI was 0.4%q/q as existing wage caps and freezes were retained. A base effect established a new record low for annual growth as it eased from 1.5% to 1.3%.
Before the recent Delta lockdowns, the strong recovery in the labour market had not generated broad-based wages pressure. Firms had generally responded by using non-wage strategies to retain or hire staff including sign-on or retention bonuses or offering more flexible working conditions to employees rather than raising base rates of pay. In the release, the ABS noted that there were only "a few isolated examples of skills shortages placing pressure on employers to meet expected market rates".
Market expectations | Wage Price Index
For the September quarter, the market consensus is for a 0.6% rise between a range from 0.4% to 0.8%. Such an outcome would lift annual growth from 1.7% to 2.2%, driven by base effects with the low point for wages growth in the pandemic falling out of the calculation.
What to watch | Wage Price Index
The main point markets will be interested in from today's release is how wages growth is tracking relative to the RBA's expectations. The recent RBA Statement on Monetary Policy forecast wages growth to reach 2¼% by the end of the year and rise only gradually thereafter. This is predicated on the "inertia" Governor Lowe referred to yesterday when he spoke about the wage-setting process in Australia. The effects of annual resets on the minimum wage, the presence of multi-year enterprise bargaining agreements and the slow adjustments to public sector wages meant that an acceleration in wages pressure would be difficult to generate.