Australian wages growth matched market expectations rising by 0.8% in the June quarter, leaving the annual pace at an unchanged at 3.4%. These outcomes are in line with RBA forecasts and come after yesterday's decision by the Monetary Policy Board to cut the cash rate by 25bps to 3.6%. Despite the RBA lowering its assumption for the rate of productivity growth in its latest forecasts, its concerns over the inflationary impact of wages growth have declined. At the current pace, wages growth remains in the comfort zone for the RBA, consistent with 2-3% inflation. Signs of softening in that have emerged in the labour market only increase that comfort.
The Wage Price Index (WPI), a key indicator of wage inflation in the Australian labour market, tracks the movement in base wages across a fixed basket of jobs. For the June quarter, the WPI rose by 0.8%, down a tick from its pace in Q1 (0.9%) but in line with expectations going into the report. Annual growth in wages held at 3.4%, cooling noticeably from its peak of 4.2% a little over a year ago. The annual pace aligns with the more recent momentum in the WPI in 3- and 6-month annualised terms of 3.4% and 3.5% respectively.
The underlying drivers of wages growth went quiet in the June quarter, something of an in-between period coming after new state-based enterprise bargaining agreements (EBAs) boosted wages growth in the March quarter but before the Fair Work Commision's 3.5% increase to the minimum wage and awards takes effect in the September quarter.
In the private sector, wages growth was 0.8% in the latest quarter compared to 0.9% for the March quarter. The annual pace rose slightly from 3.3% to 3.4%. At the peak, wages growth in the sector was running north of 4% at a 15-year highs. Since late 2023, private sector wages growth has been cooling in a slowing inflationary environment, and as tightness in the labour market has eased.
Wages growth in the private sector tends to be more responsive to the overall balance of conditions in the labour market than the public sector. Accordingly, the average pay increase in the private sector has slowed from peak of 5.8% in Q3 2023 to 3.9% currently. Meanwhile, just 12% of private sector jobs saw a wage change in the June quarter, with the bulk of annual reviews typically coming in the September quarter.
Public sector wages growth lifted by 1% for the June quarter off the back of a 1.1% rise in the previous quarter. The slightly faster pace of wages growth in the sector likely reflects the on going effects of the recently implemented EBAs in New South Wales, Victoria, and Western Australia. Some 20% of jobs saw a wage rise this quarter. Annual wages growth is running at 3.7%, up slightly from the March quarter (3.6%) but down from the highs of 4.3% in late 2023. The average pay increase was 3.5%.
Using the latest industry data, my estimates of wages growth for broad sectors of the labour market remain well down from their recent highs. Wages growth appears to have troughed in business services, but still looks to be easing in the mining and good-related sectors. Household services has seen a recent pick up, but that has been driven by the federal government's wage reforms in the child care and aged care sectors.
