Australia's Wage Price Index for the September quarter is due to be published by the ABS today at 11:30am (AEDT). Wages growth has gradually risen off the lows of the pandemic alongside the recovery and subsequent tightening in the labour market but is still unlikely to be at a pace that is contributing to inflation pressures in the economy. In today's report, wages growth will be boosted by increases to the national minimum wage and award rates.
As it stands | Wage Price Index
Aggregate wages growth continued to pick up rising by 0.7% in the June quarter to be up by 2.6% through the year. Wages growth floored at 1.4%Y/Y in the back half of 2020 but the strength of the recovery in the labour market has driven a rebound to now be running at its fastest since 2014, though that is a pace well below inflation in Australia (7.3%Y/Y).
Wages growth in the private sector lifted by 0.7%q/q to 2.6% in year-ended terms - a little stronger than its pre-pandemic pace. A key development to emerge in the sector is the rising rate of wage increases. Only 14% of jobs received a pay rise in the quarter, but the average of those rises was 3.8% - its highest in a decade. Meanwhile, the WPI inclusive of bonuses measure lifted to 3.3%Y/Y, also a decade high indicating that firms' labour costs are rising due to factors other than increases in base wages.
In the public sector, wages growth is softer at 0.6%q/q and 2.4%Y/Y. This is largely because wage caps had been in place in the sector, though they have more recently been recalibrated in many states.
The industries that are seeing the fastest pace of wages growth are in the goods-related and business services sectors. Construction (3.4%Y/Y) and manufacturing (3.1%Y/Y) are boosting the goods-related sector due to skills shortages. The average increase across business services industries was 2.8%Y/Y in Q2, reflecting strong competition for labour and increased churn from workers changing jobs.
Market expectations | Wage Price Index
The headline wage price index is tipped to rise by 0.9% in the September quarter between a range of estimates from 0.8% to 1.4%. That would lift the annual pace to 2.9%, which would be the fastest since Q1 2013 but still below the range the RBA estimates to be consistent with generating sustainable 2-3% inflation.
What to watch | Wage Price Index
The quarter-on-quarter figure for wages growth is the key number to watch. An increase of the magnitude expected in today's report (0.9%) hasn't been seen in over a decade, and there could be risk to the upside. The driving factors are the strength in the labour market where the unemployment rate is down at half-century lows, and from increases in the national minimum wage and award rates coming through. Back in June, the Fair Work Commission announced a 5.2% increase in the minimum wage and a 4.6% rise for award rates. Those increases came into effect from the start of the quarter, though for pandemic-affected industries the award rate increase is delayed until the start of Q4.
