In a bit of positive news for Australian households, wages have increased faster than inflation for the fourth quarter in a row according to the latest figures released by the Australian Bureau of Statistics (ABS). The wage price index (WPI) rose at an annual rate of 3.5% in the September quarter, outpacing the 2.8% annual inflation rate for the same period.
While the 3.5% wage growth is slightly lower than the 3.6% pace economists were expecting and down from 4.1% in the June quarter, it still marks a full year of “real” wage increases after accounting for inflation. This provides some much-needed relief to Australians who have been grappling with surging living costs.
Public vs Private Sector Wages
Looking at the breakdown, public sector employees saw their wages rise by a seasonally adjusted 3.7% year-on-year, the slowest annual rate since September 2022. Meanwhile, private sector wages, which cover about 80% of the workforce, increased by 3.5% – matching the pace from a year ago.
Though welcome news, these wage gains will only marginally offset the significant decline in purchasing power many Australians experienced in late 2022 and early 2023 when prices soared much faster than incomes. The hope now is that the upward trend in wages doesn’t reignite inflation concerns.
Implications for Interest Rates
The Reserve Bank of Australia (RBA) will be closely monitoring wage growth as it seeks to tame inflation without derailing the economy. Prior to this data, financial markets weren’t fully pricing in an interest rate cut until July. The central bank will likely be reassured by the fact that wage increases are moderating, though at a slower clip than headline inflation.
According to NAB’s latest business survey, labor cost growth continued to ease, slowing from a quarterly pace of 1.9% in the September quarter to 1.4% in the three months to October. This suggests wage pressures may be gradually cooling, reducing the need for the RBA to keep rates higher for longer.
“Wage rises for many jobs can be directly or indirectly linked to the outcomes of the Fair Work Commission Annual Wage Review decision,” noted Michelle Marquardt, head of prices statistics at the ABS.
That decision resulted in a 3.75% pay increase from July 1, 2024, two percentage points below the boost in the same quarter last year. This slower pace of regulated wage hikes should help contain economy-wide wage growth going forward.
Potential Market Reaction
The Australian stock market pared some losses in midday trading following the release of the wage data, possibly reflecting cautious optimism about an earlier-than-expected interest rate cut. The Aussie dollar was little changed, trading slightly above 65 US cents.
However, investors will likely remain cautious given the still-tight labor market, with the unemployment rate hovering near a half-century low. This could keep upward pressure on wages even as inflation recedes.
Key Takeaways
- Australian wages increased by 3.5% annually in Q3, exceeding the 2.8% inflation rate
- Both public and private sector wage growth moderated compared to the previous quarter
- The RBA will factor in wage trends as it balances the need to curb inflation and support growth
- Slowing wage growth may reduce pressure on the central bank to keep rates high
- Financial markets are eyeing the possibility of interest rate cuts in the coming months
As Australia continues to navigate the post-pandemic economy, the interplay between wages, inflation, and monetary policy will remain crucial. The latest wage figures offer some encouragement that the country is making progress in reining in inflation without snuffing out wage gains entirely. However, the path ahead remains uncertain, and policymakers will need to stay vigilant to ensure a sustainable and inclusive recovery.
