Australia's Wage Price Index for the June quarter is scheduled for release at 11:30am (AEST) today. Strong labour market conditions have underpinned a rise to decade-high wages growth in Australia, with the upward momentum set to continue. However, the pace at 3.7% in annual terms remains well below the inflation rate (6%) and is in a range the RBA assesses is not a constraint on a return to its 2-3% inflation target band.
A recap: Wages growth continued to rise in the March quarter...
Wages growth is running at 10-year highs in Australia, having rebounded from record lows during the Covid period. This acceleration reflects wage settings responding to strong labour market conditions - with the national unemployment rate at half-century lows - and high inflation. In the March quarter, the Wage Price Index was 0.8%, elevating the increase to 3.7% over the year from a 3.4% pace previously.
Private sector wages growth (0.8%q/q) lifted to 3.8% (year-ended) and to a 4.1% pace inclusive of bonuses. This continued to outpace wages growth in the public sector (0.9%/q) at 3.0% over the year, the pace having been held back by measures enacted in the sector to cap pay growth.
... with the share of larger wage gains increasing
While only a relatively small share of jobs received a pay rise in the March quarter, the upward shift in the size of wage increases continued. The share of jobs with wage increases of 0-2% and 2-3% has declined notably, with increases of 3-4% (14.4%), 4-6% (24.5%) and 6%+ (10.6%) all picking up.
Wages growth looks to have held up in the June quarter...
The median estimate is for headline wages growth to rise by 0.9% in the June quarter, with estimates ranging from 0.8% to 1.1%. In annual terms, wages growth is anticipated to hold at 3.7% (range: 3.5% - 3.8%). The risks around today's report appear balanced. Analysis of high-frequency wage trackers in the RBA's August Statement on Monetary Policy indicates the momentum in wages growth was steady over the June quarter.
... and is set to increase further in the quarters ahead
The Fair Work Commission's announcement of a 5.75% increase to award rates and an 8.6% rise in the national minimum wage will not be reflected in today's numbers. These increases will largely flow through in the September quarter. Based on its estimates in its August statement, the RBA forecasts a rise to a peak of 4.1% in the WPI by the end of the year. The main impulse to wages growth in the June quarter may come from the public sector, reflecting the continuation of new wage policies and enterprise agreements coming into effect.
