Strong Wage Growth, Is It Close To Its Peak?

Wages rose by 0.9% q/q in Q4 bringing the annual rate up 0.1pp to 4.2%, the fastest in almost 15 years and positive in real terms. The increase was driven by a 1.3% q/q increase in public sector wages to 4.3% y/y but the private sector also posted a 0.9% rise to be up 4.2%. The RBA is currently not concerned re wages but that depends on productivity improving. It stated that productivity not recovering “as assumed” was a “material risk”. Without that growth, current wage rates are too high to achieve the inflation target.

• The RBA is forecasting WPI growth to be steady at 4.1% y/y in Q2 but easing to 3.7% by year end as lower inflation and easier labour market conditions drive a decline in wage pressures. The July 1 increase in the minimum award wage is likely to be announced in June.
• The increase in private wages was in line with Q4 2022 and H1 2023 and is yet to show any material signs of slowing, excluding the minimum-wage impacted Q3 outcome. 16% of private sector workers received a pay rise in Q4, down from Q4 2022’s 21%, and the average increase was 4.4%, in line with H1 2023 but above Q4 2022.
• The public sector saw its highest quarterly pay rise in 15 years driven by new enterprise agreements especially for essential workers. 38% of public sector employees received a pay rise with the average at 4.3%, up from 29% and 2.8% in Q4 2022.
• The ABS observes that the share of jobs receiving a wage increase over the last year of more than 3% continues to rise with it standing at 64% in Q4 2023 compared with 45% in Q2 2022. 29% received a rise of 4-6% up 6pp y/y and 14% above 6% (+4.7pp y/y).

Source: MNI - Market News/ABS/SEEK

Australia real wages y/y%

Source: MNI - Market News/ABS/SEEK/Refinitiv