Australia’s September quarter Wage Price Index (WPI) is about to be released.
If you haven’t heard of it, you probably should. It’s arguably the most important data release in Australia right now, rivalling the likes of inflation, GDP, and the monthly jobs report.
The reason for this is simple. The Reserve Bank of Australia (RBA) is banking upon a gradual lift in wage pressures to help boost household consumption, the largest part of the Australian economy.
If the economy starts to gather momentum, that should help lower unemployment and boost inflationary pressures.
The linkages are clear, as are the implications for interest rates.
Put bluntly, when wage pressures start to build in any meaningful manner, it’s likely interest rate hikes will quickly follow suit.
That all but ensures there’ll be more focus on today’s report than usual.
Here’s the state of play.
- The WPI measures changes in ordinary hourly rates of pay, not the amount of hours worked or compositional changes in the workforce. Just hourly wage rates excluding bonuses.
- As seen in the chart, wage growth has decelerated sharply over the past five years, tumbling to levels not seen since the early 1990s recession.
- In the June quarter, the WPI rose by 0.5%, leaving the year-on-year increase steady at 1.94%. The annual pace was marginally above the record-low level of 1.87% set in the final quarter of 2016.
- Private-sector wages, employing the vast majority of the Australian workers, grew by just 1.78% over the year, the slowest pace on record.
- With consumer price inflation running at 1.9% over the same period, real wage growth for private-sector sector workers went backwards.
- In contrast, public sector wages grew at comparatively brisk annual pace of 2.39%, almost unchanged from the 2.4% level reported in the March quarter.
- Without seasonal adjustments, mining sector wages grew by just 1.1% over the year, the weakest of any industry. At the other end of the spectrum, wages for health care and social assistance workers rose by 2.6%, the fastest in the country.
- Today, wage growth is expected to accelerate, albeit due to temporary factors.
- The median economist forecast looks for a quarterly increase of 0.7%, the fastest since the first quarter of 2014. Individual forecasts range from an increase of anywhere between 0.5% to 0.8%.
- A larger-than-usual 3.3% increase to Australia’s minimum wage rate at the start of July explains why most economists expect an acceleration in the quarterly reading.
- It’s expected to boost underlying wage growth by around 0.2 percentage points. Put another way, without it, wages would grow by a smaller 0.5%.
- With quarterly growth expected to accelerate, the annual rate is tipped to rise to 2.2%, the fastest increase in two years.
- Individual forecasts range from an increase of 2% to 2.3%.
- Given the statistical noise generated by the minimum wage increase, markets are likely to focus on the underlying trend in both measures to gauge whether recent strength in employment growth is starting to translate to a pick-up in wage pressures.
The report will arrive at 11.30am AEDT.
Business Insider will have all of the details as soon as the figures drop.