Momentum in Australia's Wage Price Index (WPI) has continued to slow printing at 0.8% in the June quarter, below the 0.9% outcome forecast. This came despite a change in Commonwealth public service pay agreements that boosted public sector wages growth by the most in a June quarter in 12 years. Annual wages growth held up at 4.1%, some 20bps higher than forecast due to upward revisions to the outcomes from Q3 last year (1.3% from 1.2%) and Q1 this year (0.9% from 0.8%).
The WPI - a measure of growth in base wages across a fixed basket of jobs in the Australian labour market - recorded a 0.8% rise in the June quarter. This was the slowest quarterly rise seen in a year. The momentum in wages growth has slowed as tightness in the labour market has eased and earlier large increases to awards and agreements (in catch up to high inflation) have not been repeated.
Annual growth in the WPI remained at 4.1% - just below the cycle high of 4.2% at the end of 2023 - but the recent momentum points to a sharp slowing looking out to the back end of the year. Wages growth is running at 3.2% and 3.4% in 3-month and 6-month annualised terms respectively. This also points to downside risks to the RBA's forecast for wages growth to slow to 3.6%Y/Y by year-end, a projection the Bank revised down from 3.8%Y/Y in last week's Statement on Monetary Policy.
However, due to the RBA judging that there is less supply capacity in the economy than it previously assumed, it will be looking at today's numbers cautiously in terms of the implications for its outlook for wages growth. Meanwhile, if employment growth remains as resilient as it has been through the first half of the year, then wages growth may not slow as sharply as implied by the recent momentum in the WPI. The next employment report (for July) is due on Thursday morning.
Turning to the internals of today's report, private sector wages growth came in at 0.7% in the quarter - the slowest rise since Q4 2021. This saw the annual pace ease from 4.2% to 4.1%.
The ABS reported that just 11% of private sector jobs saw a wage movement in the quarter, broadly in line with the same quarter last year. Of those jobs, the average pay increase was 4.2% compared to 4.5% last year. The lower chart below shows that the bulk of wage increases occurs in the September quarter, so that report carries much more weight than today's in terms of the outlook for wages growth.
In the public sector, wages growth lifted from 0.6%q/q in the March quarter to 0.9%q/q in the June quarter. The ABS noted this was the fastest rise in public sector wages seen in a June quarter since 2012. This reflected a change in the timing of wage increases in the Commonwealth public service, now effective for all jobs from mid-March rather than on varying schedules as stipulated in departmental agreements. Because of the boost to quarterly wages growth, the annual pace lifted from 3.8% to 3.9%.
The next chart aggregates the industry-level data on wages growth (full details are in the summary table above) into broad sectors. It shows that while wages growth remains broadly elevated, it has plateaued across most parts of the labour market.
