Australia’s December quarter wage price index (WPI) is about to be released, a measure on changes in hourly wage and salary rates.
After falling to the lowest level on record in the September quarter, economists expect a small pickup in wage inflation today, breaking the deceleration that’s been seen in the past four years.
However, if there’s been a trend in this series recently, it’s been that the figure has almost always undershot expectations. And with labour market slack still in abundance, there’s a clear risk that a similar scenario could arrive today.
Given the RBA is expecting a modest pickup in household income (which is dominated by wages) to help bolster economic growth and inflationary pressures in the years ahead, any undershoot will put those forecasts in doubt.
Here’s the state of play:
- In the September quarter last year, the index grew by just 0.4% in seasonally adjusted terms, leaving the annual change at just 1.88%. Both readings were the lowest on record.
- The annual growth rate, with just one exception, has fallen every quarter since mid-2012.
- Private sector wages — the largest employer in the country — grew by just 0.41% during the quarter, leaving the annual increase at 1.89%.
- In comparison, public sector wages increased at a relatively brisk pace of 0.56%, seeing annual growth slow to 2.27%.
- The annual rates for both private and public sector wages were the lowest on record.
- Elevated levels of underemployment and underutilisation in the labour market, along with subdued inflationary pressures both at home and abroad, likely contributed to the weak result.
- Today, economists expect the downtrend in wage growth to reverse, although it’s only expected to be small in scale.
- Of the 24 polled by Bloomberg, the median forecast is centred around a quarterly increase of 0.5%. Individual forecasts range from growth of 0.4% to 0.7%.
- If correct, that’ll leave the annual change at 1.9%, unchanged from the previous quarter. That will also fit with recent research from ANZ and the NAB showing that wage pressures may have already seen its nadir.
- It will also help to bolster the view offered by the RBA in the minutes of its February monetary policy meeting which said “there were some indications that wage growth had reached a trough”.
- “Growth in wages and household income were expected to increase gradually,” the minutes said, adding “any increase in uncertainty… about their future income growth could lead to lower consumption growth”.
- That means that today’s report has the potential to shift interest rate expectations, if only modestly.
The WPI is scheduled for release at 11.30am AEDT, accompanying the separate December quarter construction work done report (a partial GDP input) that will arrive at the same time.
Business Insider will have all the details once the data arrives.