Australia's Wage Price Index for the March quarter is due to be published by the ABS at 11:30am (AEST) today. Wages growth was running at a 10-year high by the end of 2022, though at 3.3% the pace remained well below the rate of inflation. Despite recently lowering its forecasts for wages growth, the RBA hiked rates in May and signalled that it remains attentive to the risk of second-round effects of high inflation in wage-setting processes.
As it stands | Wage Price Index
A 0.8% increase in the December quarter lifted the annual pace of wages growth to 3.3%, a 10-year high in Australia. Strong labour market conditions, increases to award rates and the minimum wage and high inflation have seen wages growth accelerate from the lows reached during the depths of the pandemic in 2020 at just below 1.5%.
Although a much smaller share of jobs received a pay increase in the December quarter (21%) relative to the previous quarter (46%), the size of the average pay increase remained elevated at 4% from 4.3% in Q3.
Private sector wages growth continued to pick up in the quarter (0.8%) and was running at a 3.6% annual pace. This is materially above public sector wages growth of 2.5%, with the pace being held back by existing wage policies in the sector.
Wages growth in most industries is tracking in the 3-4% range. In the December quarter, the strongest increase that came through was in the accommodation and food services industry (1.7%) as increases to award rates in the hospitality sector came into effect.
Market expectations | Wage Price Index
The consensus estimate is for headline wages growth to rise by 0.9% in the March quarter (range: 0.8-1.1%), an outcome that would lift the annual pace to 3.6% (range: 3.5-3.8%). Analysis of higher frequency indicators from the RBA's May Statement on Monetary Policy indicated that upward pressure on wages growth was maintained through the first quarter, though it was noted that the momentum had eased somewhat.
What to watch | Wage Price Index
In its May Statement, the RBA lowered its outlook for wages growth after the WPI outcome in the December quarter was softer than it had anticipated. The central forecast now is for wages growth to peak at 4% at the end of the year compared to 4.2% previously. But after making a hawkish turn and surprising markets with a rate hike earlier this month, today's report will be closely watched. Markets expect the Board to leave rates on hold in June at 3.85%, but an upside result on wages growth would be a catalyst for that pricing to factor in a greater chance of another hike.