Westpac: Australian Wages Lag Expectations

Westpac note that “we have been cautioning that while we expect reported wages to lift it is more likely seen in the broader measures of labour costs rather than the WPI. The WPI is such a pure measure of hourly wage rates it has historically been far more stable that you may expect and is likely to lag reports of a lift in wage inflation.”

• “The ABS also noted that this June in the private sector a higher proportion of job received a wage increase compared to recent June quarters. The average size of wage rises in the private sector grew quickly over the last two quarters, and at 3.8% June was the highest average increase since June 2012. Demand for skilled jobs over the last 12 months has continued to build wage pressure across a broad range of industries and jobs, reflected in the increasing size of pay rises.”
• “The average pay rise in June quarter 2022 was mostly driven by a combination of in-demand market sensitive jobs and enterprise agreements linked to the Consumer Price Index (CPI).”
• “The recent lift in the minimum wage/awards will not appear until September as most are not scheduled to receive their wage rise until after the June quarter, as scheduled in the Fair Work Commission Annual Wage Review decision 2021-22.”
• “Focusing on the private sector market sensitive jobs, the ABS notes a growing proportion (17%) recorded wages rises compared to previous June quarters (13% in 2021 and 8% in 2020, the start of the pandemic). Looking at the time between pay rises, 74% of the jobs receiving a pay rise in June recorded at least one rise in the last year. Compared to previous June quarters a significantly higher proportion of those jobs recorded more than one pay rise in the last year.”
• “The most recent observation on wages suggests they are modestly underperforming compared with the longer run trend relationship with underutilisation (unemployment plus underemployment). However, it is still broadly consistent with our expectation for wage inflation to peak around 4.5% Y/Y in 2023.”