Australia's update of the Wage Price Index (WPI) for the September quarter (Q3) is due at 11:30am (AEDT) today. Robust labour market conditions have underpinned strong wages growth, and the RBA as recently as last week reaffirmed that at the current pace of around 4%, annual wages growth was inconsistent with its 2-3% inflation target given the prevailing weakness in productivity. This factors into market pricing that has RBA rate cuts out of the profile until mid-2025. Today's report is unlikely to shift this outlook even with wages growth moderating below 4% in Q3.
Q3 Preview: Wages growth expected to hold a strong pace
Headline wages growth is expected to come in at 0.9% in the September quarter, with estimates ranging from 0.8% to 1%; an outcome on consensus would slow annual growth from 4.1% to 3.6% - assuming no revisions to prior quarters. Wage settings in Australia are boosted in Q3 following end-of-financial-year wage reviews (for workers on individual agreements) and as the decisions on increases to the minimum wage from the Fair Work Commission start coming into effect. The size of the boost from these factors is expected to be down on last year, driving the forecast slowing in year-on-year wages growth.
Labour market conditions remain tight by historical standards but have eased over the past year. The unemployment rate has lifted from an average of around 3.7% in Q3 2023 to 4.1% currently. Alongside this, the average pay increase in the private sector has slowed from a peak of 5.8% to 4.2% by Q2 this year. Meanwhile, the Fair Work Commission settled on a 3.75% increase to the National Minimum Wage in its 2024 decision, down from a 5.75% rise in 2023.
A recap: Wages growth remained around 15-year highs in the June quarter
The WPI increased by 0.8% in the June quarter - a touch soft relative to expectations (0.9%) -holding at 4.1% year-on-year, a pace little changed since the middle of 2023. Wages growth above 4% is tracking at its fastest pace since 2008/09, after falling to record lows of 1.4% during the 2020 pandemic crisis. The rebound was driven by the significant tightening that occured in the labour market coming out of the pandemic, with employment surging during a time of border restrictions, and wage-setting processes catching up to high inflation.
Private sector wages growth is slowing with tightness in the labour market easing. Quarterly wages growth in the sector in Q2 was 0.7% - its slowest increase since late 2021 - with the annual pace moderating from 4.2% to 4.1%. In the public sector, wages growth in Q3 (0.9%) outpaced the private sector, though the annual pace was softer at 3.9%.
