What's up with wages:
  • Wages growth slightly moderated in the March quarter, rising 0.8% from the previous read’s revised 1.0%
  • Annual wages growth also slipped to 4.1% from 4.2%, suggesting that pay increases have moved past their peak
  • Despite easing, wages are still growing faster than consumer prices
  • Annual wage growth in the private sector outpaced public sector pay increases, but both were down from the previous quarter’s outcome 

Fresh data from the Australian Bureau of Statistics (ABS) reveals the wage price index (WPI) rose 0.8% over the March quarter, a whisper below the revised quarterly growth of 1.0% in Q4 2023

Likewise, annual pay growth slipped to 4.1% from 4.2%, suggesting wage growth peaked last quarter and is now beginning to moderate. 

Despite the slight easing, wage increases in the 12 months to March were still marginally ahead of the consumer price index (CPI), which sats at 3.6% in the same period.

On a quarterly basis, the 0.8% wage lift was also above the 0.6% uptick in consumer prices. 

The previous quarter marked a big win for Aussie employees when annual wage growth outpaced inflation for the first time since March 2021. 

“The WPI annual all sectors wage growth has remained at or above 4% since September quarter 2023,” ABS head of prices statistics Michelle Marquardt noted.  

According to Ms Marquardt, the last time wages growth was at this level for three consecutive quarters was in March 2009. 

Annual private sector wage growth eased slightly to 4.1% from 4.2% in the December quarter, falling for the first time since September quarter 2020. 

Public sector wages moderated at a sharper rate, down 3.8% from 4.3%. 

Private sector pay overtakes public sector wages

Workers employed in the private sector saw a bigger wage bump than those in the public sector over the first three months of the year, the ABS data shows.

Private sector salaries grew 0.8% quarterly, while public sector wages increased 0.5%. 

Driving the quarterly WPI growth was the professional, scientific, and technical services industry (0.09%), followed by education and training (0.07%), construction (0.06%), and health care and social assistance (0.06%).

Marking the moderation in wage growth, the noted pay increases in private and public sectors were the smallest since March quarter 2022. 

The statistician attributed the public sector outcome to the minimal impacts of enterprise agreements, most of which were already settled in the previous quarters. 

“Many jobs covered by these new agreements saw scheduled rises paid in either the September or December quarters last year instead of in March quarter 2024,” Ms Marquardt said. 

The implementation of several new enterprise agreements pushed up salary growth in the public sector in the previous quarter. 

Such agreements included a pay rise for essential workers in New South Wales and Queensland, wage cap increases in Victoria and NSW, and the Cook Government's salary boosts in Western Australia. 

In the March quarter, on the other hand, enterprise agreements had less influence on overall wage growth compared to the same period last year.  

In addition, many of the 2023 March quarter’s new agreements paid second tranche increases in 2023, rather than on the anniversary of the new agreement.

The slowdown in wages growth in the private sector was partly attributed to fewer jobs seeing pay changes, rather than smaller pay rises. 

“Just 12% of jobs saw a pay change in the three months to late February,” NAB senior economist Taylor Nugent said. 

"That compares to 14% last year and 15-17% in the years prior to the pandemic." 

A welcome development for the RBA

Today’s downside surprise confirms the view of the Reserve Bank and major economists that wage growth has passed its peak. 

This may be the preferred outcome of the RBA, which appeared a little more concerned about wage growth at its last monetary policy meeting. 

“Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth,” the RBA Board said. 

Productivity is an important gauge for the RBA to determine whether wage increases pose upside risks to the wage/inflation dynamics. 

Wage growth higher than the productivity rate is generally not good for the economy, as it means higher labour costs per unit of output. 

“The WPI data today gives us greater confidence that dynamics in the labour market – namely softening labour demand amid robust labour supply growth – is contributing to a modest easing in the pace of wages growth,” CBA economist Stephen Wu said. 

The government likewise forecasts a moderate easing of salary increases. 

In its updated economic forecast, revealed in last night’s Budget, the Albanese administration expects WPI to sit at 4.0% in the June quarter, below the RBA’s expectation of a 4.2% print. 

“Key to the wages outlook is the outcome of this year’s FWC minimum and award wage decision,” Mr Wu noted.  

“Last year’s 5.75% increase in award wages contributed to a stronger‑than‑expected Q3 2023 wage and inflation outcome.

“However, with inflation having eased markedly from a year ago, an outcome that implies no real wage declines (as the government recommends) would see the pulse of wages growth moderate.”

In light of today’s data, economists expect no change in RBA’s thinking, with all four major banks remaining fully priced for a cash rate hold at 4.35% until November.

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