Australia's Wage Price Index (WPI) for the March quarter is due to be published at 11:30am (AEST) today. Wages growth neared 15-year highs at the end of 2023 at an annual pace above 4%. There are signs that wages growth is around its peak for the cycle, with labour market conditions easing but still remaining tight overall. In today's report, wages growth is expected to remain around 4.2%.
A recap: Wages growth continued to rise into year-end
The WPI increased by 0.9% in the December quarter to an annual pace of 4.2%, a near 15-year high. After falling to cycle lows of 1.4% during the pandemic crisis, wages growth accelerated alongside the economic recovery as the labour market tightened and wage-setting processes adjusted to a high inflationary backdrop.
Wages growth in the most recent quarter was driven by the public sector, which saw its fastest quarterly increase (1.3%) since 2009. This drove the annual pace from 3.5% to 4.3%, overtaking growth in private sector wages (4.2%) for the first time in this cycle. The catch-up in the public sector reflects new wage agreements progressively coming into effect, including in specific industries such as healthcare and education.
There were signs in the Q4 report that wages growth may be around its peak, consistent with the level of tightness in the labour market having eased. Wages growth in the private sector tends to be more responsive to changes in underlying economic conditions, and wages growth in the sector appears to be stabilising. Additionally, wages growth for workers on individual agreements (most commonly used in the private sector) has softened slightly. However, new enterprise bargaining agreements (both in the private and public sector) are continuing to come into effect with a lag and so are expected to contribute further upward pressure on wages growth. Meanwhile, the bulk of the recently legislated increases to the minimum wage and awards determined by the Fair Work Commission have already flowed through to wages growth.
RBA Chart, May Statement on Monetary Policy
Wages growth to remain firm in the March quarter
Expectations are that wages growth remained firm in the March quarter; the consensus estimate going into today's report is for a 0.9% quarter-on-quarter outcome (range: 0.8% to 1%), which would hold the annual pace around 4.2%. In last week's Statement on Monetary Policy, the RBA reaffirmed its view that wages growth is around its peaks for the cycle, highlighting wage developments for individual agreements as a sign of responsiveness to the easing in labour market conditions. This is also informed by the year-ahead view on wages growth reported by firms in the RBA's liaison program, with the pace anticipated to slow to around 3.5%.