Australia’s March quarter Wage Price Index (WPI) will be released later today.
If you haven’t heard of it, perhaps you should. Few things are more important in Australia right now than wage growth, at least from a monetary and fiscal policy perspective.
The Reserve Bank of Australia (RBA) is looking for a pickup in wages to help boost household spending and therefore GDP growth, a scenario that should help to reduce unemployment and lead to stronger inflationary pressures.
If that pans out, it should mean that the next move in Australian interest rates is higher.
The Federal government is also backing a pickup in wage growth, and not just a little but a lot, to help deliver extra fiscal revenues to its coffers, allowing the budget to return to surplus.
So much is dependent on wage growth.
While it looks like growth in wages has now bottomed, as seen in the chart below, with unemployment elevated, and given recent evidence abroad, today’s report is unlikely to deliver welcome news to any worker banking on receiving a decent pay increase anytime soon.
Indeed, some believe that annual wage growth may actually decelerate again, a result that will cast renewed doubt on the outlook for household spending, GDP growth, inflation, along with an expected return to budget surplus.
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.
- In the December quarter of 2017, wages grew by 0.55%, leaving the change on a year earlier at 2.08%.
- Public sector wages grew by 0.62% over the quarter, leaving the change on a year earlier at 2.44%.
- In comparison, private sector wages, the largest employer in Australia, rose by just 0.48% over the quarter, and 1.93% over the year.
- With consumer price inflation (CPI) running at 1.9% over the same period, it meant that real wage growth was flat for most Australian workers over the year.
- Annual wage growth ranged from 1.4% in the mining industry to 2.8% for health care and social assistance workers.
- There was also a wide divergence across Australia’s states and territories with annual growth ranging from 2.4% in Victoria to 1.1% in the Northern Territory.
- Today, economists expect wage pressures to remain subdued.
- Of the 22 polled by Bloomberg, the median forecast looks for a quarterly increase in wages in the March quarter of 0.6%, basically unchanged from the level seen in late 2017. Individual forecasts range from a gain of 0.5% to 0.7%.
- Should wages increase by 0.6% as the median forecast suggests, and without revisions to prior data, that will see the annual rate remain steady at just 2.1%.
- One of the main reasons why expectations for wage growth remain so subdued is because Australian unemployment is still high. At 5.5%, it currently sits well above Australia’s non-accelerating inflation rate of unemployment (NAIRU), the point where wage growth is expected to accelerate.
- Some believe Australia’s NAIRU level could be substantially lower, citing recent evidence from the United State, United Kingdom, New Zealand and Japan. Unemployment is below the estimated NAIRU levels in those nation’s yet wage growth remains benign.
- In a speech delivered earlier this week, RBA Deputy Governor Guy Debelle admitted Australia’s NAIRU could be lower than its current estimation, creating potential downside risks for GDP growth and inflation over the next few years.
The WPI will be released at 11.30am AEST.
Business Insider will have all of the facts and figures, along with the broader implications, once it hits the screens.
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