NAB: Wages Were Stronger Than The Headline

NAB write “ignore the headline WPI excluding bonuses number which printed at +0.7% Q/Q and +2.6% Y/Y. Note the RBA had pencilled in +0.7%/2.6% in their August SoMP and thus today’s data which shows a continued gradual increase in the WPI is not a surprise. What is a surprise is the wage pressure within the details of the report. Including bonuses private sector WPI was hotter at +3.3% Y/Y vs. +2.7% excluding bonuses. Focusing only on those who received a pay rise in Q2, the average increase was 3.8%, the highest since 2012 and well above the 2.6% growth seen prior to the pandemic in 2019. Note only a small minority of private sector workers typically receive a pay rise in Q2 (11-13% of workers typically pre-pandemic; this year it was 14%), whereas 42% receive a pay rise in Q3 when the new financial year starts and when award/minimum wages typically take effect. Headline WPI should pick up more strongly in Q3 and Q4 and today’s data does not change our view of the RBA hiking rates by 50bp in September.”