Australia’s March quarter Wage Price Index (WPI) will be released on Wednesday.
Given the implications wage growth has for household income and spending, and with itbroader economic growth (as household consumption accounts for nearly 60% of Australian GDP) the WPI is one of the most important data releases in Australia, especially at a time when underlying inflation sits near the lowest level on record.
Put simply, if wage growth doesn’t pick up noticeably in the period ahead, it will add to downside risks for inflation, adding pressure on the RBA to cut Australia’s cash rate again.
After falling to the lowest levels on record in 2016, the WPI has started to edge higher over recent years, helped in part by tighter labour market conditions and large increases in the minimum wage from Australia’s Fair Work Commission.
However, while there has been some progress, wage growth still remains well below the levels seen before and immediately after the onset of the GFC over a decade ago.
That trend, unfortunately, looks set to continue in the latest wage update.
Here’s the state of play.
- The WPI measures changes in ordinary hourly rates of pay. It does not incorporate the number of hours worked or compositional shifts in the workforce, just hourly wage rates excluding bonuses.
- In the December quarter last year, the WPI grew 0.54%, the slowest quarterly increase since the September quarter of 2017.
- The quarterly increase left wage growth over the year at 2.27%, marginally below the 2.29% level seen in the year to September.
- The WPI for private sector workers — where most Australians are employed — grew 0.62% over the quarter and by 2.29% over the year. Both were the fastest level in four years.
- Public sector wages grew by a slightly slower 0.6% over the quarter, leaving the increase on a year earlier at 2.53%.
- By sector, annual wage growth ranged from 1.6% for information media and telecommunication services workers to 2.8% for those employed in electricity, gas, water and waste services and health care and social assistance industries.
- By state and territory, Western Australia recorded the slowest increase in average wages over the year at 1.6%. In contrast, workers in Victoria saw average wages increase 2.7% over the same period, the fastest pace across the country.
- In the March quarter, economists expect weak wage growth to persist.
- The median forecast offered to Bloomberg looks for a quarterly increase in the WPI of 0.6%. Individual forecasts range from an increase of 0.5% to as high as 0.8%.
- Without any revisions to prior data, a 0.6% quarterly increase will see the annual increase remain steady at 2.3%.
- While Australia’s unemployment rate currently sits near the lowest level in eight years, elevated levels of labour market under-utilisation remain, contributing to weak age pressures.
- The RBA has previously stated that year-ended growth in the WPI of 3.5%, accompanied by some improvement in labour productivity, would likely be required to lift underlying inflation back to the middle of its 2-3% target.
- According to updated forecasts issued last week, the RBA is expects the WPI to increase 2.4% in the year to March.
- Underlying inflation has remained below 2% for over three years, and is currently moving away from the RBA’s mandated target.
- The RBA is forecasting that underlying inflation won’t return to the bottom of its target range until the end of next year. Importantly, that view factors in current market expectations that Australia’s cash rate will fall to 1% by the middle of 2020.
- Financial markets remain fully priced for the RBA to deliver a 25 basis point rate cut by August this year.
The WPI will be released at 11.30am AEST.
Business Insider will have all of the details as soon as it hits the screens.
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