Australia's Wage Price Index for the September quarter is due at 11:30am (AEDT) this morning. The pace of wages growth is expected to accelerate in the quarter on the back of increases to the national minimum wage and award rates. But even with this boost, annual wages growth is expected to firm to 3.9%, a relatively modest pace compared to headline inflation in Australia (5.4%) and to wages growth in other advanced economies. The RBA will be closely watching today's report, but after hiking rates to 4.35% last week it should be more of an informative data point than anything else.
A recap: Wages growth remained around decade highs in the June quarter
The WPI lifted by 0.8% for the third quarter in succession in Q2. The year-ended pace of wages growth eased from 3.7% to 3.6% but remained around decade highs. A historically strong labour market, high inflation and a recalibration of awards and pay settings have all contributed to wages growth rising sharply from the record lows seen during the depths of the pandemic.
Wages growth in the private sector (0.8%q/q, 3.8%Y/Y) continued to outpace the public sector (0.7%q/q, 3.1%Y/Y). The year-ended pace of wages growth is at least at 10-year highs in both sectors.
In a global context, however, Australian wages growth is at the more moderate end of the scale. A key reason touted for this is the nature of the wage-setting process in Australia, with annual minimum wage reviews, years-long enterprise bargaining agreements and public sector wage caps all playing a role.
Minimum wage and award increases will boost wages growth in Q3
Markets expect wages growth to accelerate to a 1.3% quarter-on-quarter rise (range: 1.2% to 1.5%), lifting the year-ended pace to 3.9%. This reflects the flow-through of the increases announced by the Fair Work Commission to the minimum wage (8.6%) and award rates (5.75%), which came into effect at the start of the quarter. Accordingly, the share of jobs that received a pay increase in Q3 will spike and likely exceed the previous high from 12 months ago (46%).
An upside surprise for quarterly wages growth is possible if the higher minimum wage and award rates have provided a signalling effect for enterprise bargaining and individual agreements to rise; however, the RBA's analysis suggests this has not been evident in any meaningful way. In fact, the Bank's business liaison has indicated that there have been declines in wages growth in some of the industries where it was rising fastest last year.
