Australian wages growth came in a touch above expectations rising by 0.9% in the March quarter, lifting the annual pace from 3.2% to 3.4% to halt a near year-long slide in that measure. Markets quickly faded a hawkish repricing of May rate cut expectations on the back of the upside print as annual wages growth was in line with RBA forecasts. New enterprise bargaining agreements coming into effect in the public sector were the main driver of wages growth in the quarter. That reaccelerated annual growth in public sector wages to 3.6%Y/Y while wages growth in the private sector held at an unchanged 3.3%Y/Y pace.
The Wage Price Index (WPI) is one of Australia's main indicators of wage inflation that tracks the movement in base wages for a fixed basket of jobs in the labour market. In the latest quarter, the WPI rose by 0.9% at the headline level, a touch above the 0.8% rise forecast by markets and up from a 0.7% lift in the previous quarter. As a result, annual wages growth firmed from 3.2% to 3.4%, its first rise since the June quarter in 2024; however, this is still well down from the cycle peak of 4.3% reached in late 2023, with the slowdown reflecting reduced tightness in the labour market and lower inflation outcomes feeding through to the wage-setting process. In 3- and 6-montha annualised terms, wages growth is tracking at 3.7% and 3.3% respectively, momentum that looks broadly consistent with the 2-3% inflation target, with the RBA's usual caveats around productivity growth returning to trend growth of around 1%.
For the March quarter, the key movement came in the public sector. Public wages lifted by 1% in the quarter. As the chart below shows, quarterly increase of that magnitude were commonplace in the sector 15-20 years ago but in more recent times that is a strong increase. Annual growth rebounded from 2.9% to 3.6%.
In today's release, the ABS attributed the strength in public sector wages growth to new state-based enterprise bargaining agreements (EBAs) coming into effect. Accordingly, EBAs made the largest contribution to quarterly wages growth, shown in the grey bars below. Individual agreements (green bars), typically the most responsive method of pay setting to labour market conditions, made only a modest contribution to wages growth.
Over in the private sector, wages growth was 0.9% in the March quarter and 3.3% through the year, an unchanged pace. The quarterly figure included a government-supported boost over and above existing awards to workers in the aged and child care sectors.
Private sector wage pressures peaked towards the end of 2023, easing over the ensuing period in line with reduced tightness in the labour market. Nonetheless, wages growth is still materially higher than in the pre-pandemic cycle where annual growth was in the 2s as unemployment was left to run in the 5-6% range, well above the low 4s where it sits today.
The underlying dynamics in the private sector included a lift in the average size of pay increase, up from 3.7% to 4.3% - its fastest pace in a year - but that applied to a narrow base as only 15% of jobs saw a pay rise in the March quarter. The bulk of jobs see pay rise in Q3, post the end of the financial year.
