The ABS is due to publish Australia's Wage Price Index for the December quarter this morning (11:30am AEDT). Strong labour market conditions and a sizeable increase in the national minimum wage saw wages growth rising above 3% for the first time since 2013 in the September quarter. While a long way short of a wage-price spiral, wage pressures in Australia are still rising.
As it stands | Wage Price Index
Base wage costs in the Australian labour market lifted above 3% for the first time in nearly a decade in the September quarter. The labour market strengthened considerably over 2022 as the economy came out of the pandemic; during the final quarter of 2021 the unemployment rate averaged 4.7% before falling to 3.5% by Q3 2022 to be at half-century lows. In Q3, the Wage Price Index increased by 1% and by 3.1% over the year.
The acceleration in wages growth was being driven by the private sector where demand for labour has been very robust. This was boosted by the national minimum wage increase, which ranged between 4.6% to 5.2% depending on the award. As a result, private sector wages lifted by 1.2%, the sharpest rise in 12 years, to 3.4% over the year. Public sector wages growth is running at a materially slower pace (0.6%q/q and 2.4%Y/Y), mainly reflecting wage policies in the sector to cap pay increases.
Market expectations | Wage Price Index
Headline wages growth is forecast to rise by 1% in the December quarter (range: 0.9% to 1.3%). That outcome would lift the annual pace to 3.5%, in line with the RBA's forecasts.
What to watch | Wage Price Index
Given the strength of the labour market and with the remainder of the minimum wage rise to come through in Q4, the risks around today's report look to be on the upside. Markets have adjusted to the RBA's hawkish tone at the February meeting by raising pricing for the peak rate to above 4% by mid-year.
