Wages growth still soft and RBA will take note

Dr Sarah Hunter, KPMG Senior Economist, responds to today’s Wage Price Index figures.

Wages have risen by 0.7 percent over the previous quarter – the trajectory of increase is now clear and if this is maintained through the rest of 2022, annual growth will approach 3 percent by the end of the year.

But the headline year-on-year rate remains fairly subdued, at 2.4 percent. While this reflects the weak pace of wage growth seen in the second half of 2021, it is still relatively soft, with many in the market having expected annual growth to move closer to 3 percent today. It is off the pace with regard to price inflation, meaning real wage erosion is still happening.

These figures by themselves are unlikely to push the RBA into a more aggressive pace of rate rises – though we still expect to see four more moves this year, to take the cash rate to 1.25% percent.

It was clear from anecdotal reports and the RBA’s reporting from their business liaison program that the pace of annual wages growth started picking up again at the start of the year.

Today’s figures show the private sector leading the way, with wages rising 0.7 percent on the quarter. The ABS also noted that for those workers in the private sector that received a pay rise, the absolute size has increased.

This reflects both the more flexible wage setting process in many businesses, with workers able to negotiate individually, and the reality of acute labour shortages in some sectors.

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