Australia’s June quarter wage price index (WPI) is about to be released, a report that looks at the change in hourly pay rates for Australian workers.
It’s arguably the most important data release in Australia in mid-2017, underpinning the outlook for inflation, household spending and interest rates in the period ahead.
One only has to look at the deceleration in the WPI over the past five years, coinciding with a series of rate cuts from the Reserve Bank of Australia (RBA), to demonstrate why this report is important.
Essentially, where the WPI moves, Australian interest rates are likely to follow suit.
Here’s the state of play.
- Growth in the WPI has been fairly atrocious over recent years.
- In the year to March, it grew by a paltry 1.87%, the smallest increase on record.
- With inflation rising by 2.1% over the same period, it left real growth in hourly wage rates at -0.2%. Wage growth, in other words, went backwards.
- Private sector wages — the largest employer in the country – grew by just 1.79%, also the lowest level on record.
- Public sector wages fared a little better, lifting by 2.33% over the same period.
- By sector, wage growth ranged from 0.6% for the mining industry to 2.3% for public administration and safety, education and training, and health care and social assistance industries.
- By state and territory, and reflective of varying economic conditions across Australia, Western Australia recorded the slowest wage growth at 1.2%. At the other end of the spectrum, wages in Tasmania grew by 2.3%, the fastest of any state and territory.
- Today, economists are forecasting another soft WPI outcome in the June quarter.
- The median forecast offered to Bloomberg is centred around a quarterly increase of 0.5%, leaving the year-on-year rate unchanged at 1.9%.
- Individual forecasts for quarterly growth range from 0.5% to 0.7%, while those for annual growth range from 1.9% to 2.1%.
- That suggests that the risks today, at least based on these forecasts, may be slightly skewed to the upside.
- A steady or slightly higher-than-expected WPI will help to solidify the view that wage growth has now bottomed ahead of an expected increase in the September quarter due to a recent lift in Australia’s minimum award wage.
- It will also help to build confidence at the RBA that its forecasts for a pickup in inflation and household spending will come to fruition in the years ahead, potentially laying the foundation for an eventual increase in official interest rates.
- However, if the WPI undershoots, doubts about those forecasts will understandably intensify.
- According to the National Australia Bank, the performance of wage growth in New South Wales may act as a lead indicator for the broader Australian economy should labour market conditions continue to tighten.
- At 4.8%, its unemployment rate is below the 5% level the RBA currently believes is required to lift wage pressures.
- “Investors should therefore be watching developments in the state first for evidence as to the extent of any cyclical improvement in wage growth in the coming years,” the NAB says.
The WPI will be released at 11.30am AEST.
Business Insider will have all of the details once the data hits the screens.