One of Australia's main indicators of wages growth is published today, with the Wage Price Index (WPI) series for the March quarter out this morning local time (1130 AEST). An RBA rate cut at the May meeting is widely considered a lock after core inflation returned to the 2-3% target for the first time since 2021 in the March quarter. In addition to Thursday's employment report, signs that wage pressures are easing in a labour market past peak cycle tightness would only shore up that expectation.
Q1 Preview: Moderate wages growth expected
In today's report, headline wages growth of 0.8% is expected in the March quarter, with estimates ranging from 0.7% to 1.0%. If met, that figure would match the outcome from the same period 12 months ago. On that basis, the annual pace of wages growth would hold at 3.2%. The cooling inflation backdrop points to downward pressure on wages growth; however, the RBA's forecasts in its February Statement on Monetary Policy had the pace ticking up to 3.4% by mid-year and staying there through year-end. Today's report is likely to either confirm the RBA's view or prompt a downward revision in new forecasts that will be prepared for the Board to consider at the May meeting. An upside surprise on wages growth (1%q/q or above) would be against the trend in the data but would drive a hawkish repricing of expectations for a May cut.
A Recap: Wages growth ends 2024 at 2-year lows
Wage pressures in the Australian labour market cooled to their slowest pace since 2022 as the WPI eased to 0.7% in the December quarter and 3.2% through the year, down from 3.6% previously. After peaking a year earlier at 4.2% wages growth would go on to slow through 2024 as the unemployment rate drifted up and lower inflation outcomes flowed through to the wage-setting process. These factors were reflected in the Fair Work Commission's decision to grant a 3.75% increase to the minimum wage and awards, well down from the 5.75% rise approved in its 2023 review.
Slower wages growth is occurring in both major sectors of the labour market. In the private sector (accounting for around 85% of total jobs), wages growth was 0.7% in the December quarter - its slowest quarterly rise in nearly 3 years - with annual growth softening from 3.5% to 3.3%, a low since the middle of 2022.
Although accounting for the bulk of employment growth since mid 2023, public sector wages growth continues to soften. Following a subdued lift of 0.6% in Q4, wages growth in the sector retraced sharply from 3.7% to 2.8% through the year, its slowest pace in 2 years.
