Wage momentum picking up, but not enough for RBA
Sarah Hunter, KPMG Senior Economist, responds to ABS monthly wage data
Today’s wages data further confirmed the positive momentum in the economy, with momentum in the December quarter 2021 picking up to 0.7 percent q/q (from 0.6 percent previously). At a high level there was a lift across the board, with both the public and the private sector lifting to 0.7 percent q/q. The unwinding of pay freezes in NSW and Queensland underpinned a 0.7 percent rise in public sector wages, and this was matched in the private sector, where average pay also rose by 0.7 percent – the delayed implementation of the July 2021 national award rise was partly responsible, with workers in retail and hospitality the biggest beneficiaries.
Digging underneath the headlines, there is still significant variation in the pace of growth across sectors. The full implementation of the award wage coupled with strong demand resulted in the retail and hospitality sectors recording the strongest growth (2.6 percent and 3.5 percent y/y respectively). There was also evidence of reported labour shortages in construction, manufacturing, and professional services, with all three sectors outperforming the national average for wages growth over the last year. But a number of sectors are lagging behind. For some this is a result of collective bargaining agreements, which locks in the pace of wage increases for multiple years; workers in the sectors with the highest rates of coverage (such as utilities and transport) are still experiencing average wages growth that is comfortably below 2 percent.
The data also highlights that many firms are choosing to financially reward their workers through higher bonuses rather than a permanent increase in their base pay. When bonuses are taken into account, hourly wages in the private sector rose 3 percent y/y in the December quarter, significantly faster than the headline 2.4 percent, which excludes bonuses.
Although the pace of growth picked up the RBA Board is likely to flag that an annual pace of growth of 2.3 percent is well below the rate they want to see before beginning to raise the cash rate – at the moment the average worker is experiencing declining real wages. Markets expect monetary tightening to begin imminently but given the nature of wage setting it will take time for momentum to build (and for this to feed through to price inflation). Given this and the RBA’s patient approach to the outlook (and desire to see evidence of a sustained pick-up) we expect it to wait until the second half of the year (August or possibly later) before pulling the trigger on the first cash rate hike.