The wage price index (WPI) jumped 4.2% in the 12 months to December, beating the consumer price index (CPI) at 4.1% for the first time since March 2021.

The quarterly result was up 0.9%, also higher than the 0.6% rise in the cost of living from October through December. 

Private sector wages rose 0.9% in Q4, easing slightly from the September quarter when it climbed to a record-high 1.3%. The annual growth was also down 4.2% from 4.3% as most pay rises and end-of-year bonuses were already distributed in the previous quarter.

Meanwhile, the public sector posted its highest quarterly wage increase in 15 years at 1.3%, following the implementation of new wage agreements for essential workers. 

“Higher growth in the public sector was primarily due to newly implemented enterprise agreements for essential workers in the health care and social assistance and education and training industries following changes to state-based wages policies,” said Michelle Marquardt, ABS head of prices statistics. 

Ms Marquardt noted the latest wage growth figures “saw a higher contribution from jobs covered by enterprise agreements than is typically recorded for a December quarter”. 

“In the December quarter 2023, 38% of public sector jobs saw a wage rise, considerably higher than the 29% from the same quarter in the previous year.” 

New agreements push up public sector salary 

The ABS attributed the growth in the public sector wages to newly implemented enterprise agreements for essential workers in New South Wales and Queensland. 

The NSW government provided wage increases of 4.5% while workers in Queensland saw their pay rising 4%. 

“Eligible jobs in Queensland also received top-up payments from a Cost of Living Adjustment in addition to the wage increase. NSW teachers also saw historic pay increases in Q4 2023 of between 8% and 12%,” CBA senior economist Belinda Allen noted. 

As a result, public sector wages in Queensland rose 5.4%, the strongest of all the states and territories. 

In addition, the New South Wales government is working to abolish for good the wage caps for essential workers like nurses, teachers, and firefighters. 

Public sector workers in Victoria, on the other hand, have had their wage cap increased to 3% from 1.5% last year. 

In Western Australia, $2.8 billion was allocated by the Cook Government to pay for the salary hikes of public sector employees. 

These enterprise agreements pushed the wages of workers in the education and training industry up 1.7%, the highest salary hike in the December quarter.

Meanwhile, the health care and social assistance industry workforce saw their wages go up (5.5%) the most through the year since the start of the series in the September quarter 1998. 

Will the wage increase worry the RBA?

Economists don’t think so, given that the Reserve Bank has repeatedly noted the current pace of wage growth is consistent with its inflation target.

But of course, a lot still hinges on whether productivity growth picks up. 

The RBA monitors the level of productivity to land a more accurate gauge of wages and inflation. 

A mismatch between wage growth and productivity is generally not good for the economy as it means higher labour costs per unit of output. 

“The National Accounts data on 6 March will provide the next read on productivity; we expect a solid rise given the decline in hours worked in the quarter,” ANZ senior economist Catherine Birch said.

While the picture remains incomplete, Ms Birch said, “We don’t think today’s data will sway the RBA’s thinking, and we still see the cash rate on hold at 4.35% until November.”

Meanwhile, the CBA forecasts that wage growth has peaked and will start to moderate in 2024.  

“Near‑term pressure will still occur from enterprise agreements, but a slowing economy, rising labour market spare capacity, and disinflation will gradually weigh on nominal wage increases,” Ms Allen said.

Bank economists at NAB, however, noted that the risk remains that wage growth will contribute to more persistent domestic inflation pressures than the RBA hopes.

“While wider signs the economy is moving back towards balance are likely to be enough to prevent the RBA from pursuing further rate rises, NAB expects the RBA to take a cautious approach to easing, and we do not see cuts until late this year,” NAB senior economist Taylor Nugent said.

This month’s RBA Minutes revealed the Board considered both the case to raise the cash rate and leave it unchanged in February. 

The Reserve Bank ultimately decided to hold the rates steady at 4.35%, acknowledging the data flow suggests inflation would return to target within a reasonable timeframe.

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