It looks like wage growth in Australia has finally turned the corner

Photo: Robert Cianflone/ Getty Images.

There are few more depressing charts in Australian than the one below, especially if you work the private sector.

It shows annual growth in average hourly wages over the past two decades, revealing the near-constant deceleration in wage growth over the past six years.

At 1.79%, private sector wages grew at the slowest pace on record in the year to March 2017. And even public sector wages, growing at a comparatively rapid 2.33% rate over the same period, also remain near record lows.

With inflation running at 2.1%, it meant that real wages for many Australians are going backwards.

However, salvation may be at hand.

According to ANZ Bank, wage growth is likely to accelerate in the period ahead.

“We expect next week’s wage price index (WPI) to show an increase of 0.5% for the quarter and 1.9% for the year. This is essentially a continuation of the recent trend of very low wage growth, although our forecasts suggest the six-month annualised rate of growth will lift to 2.0% from 1.9% in Q1 and a low of 1.8% in Q4 last year,” says Felicity Emmett, senior economist at ANZ.

“This very gradual lift is consistent with a tightening labour market and other indicators that suggest wages growth has bottomed.”

Source: ANZ

Yes, it looks like the lows are now in, especially with wage growth likely to get a boost from the recent increase in Australia’s minimum wage rate that kicked in on July 1.

“The RBA estimates that, in total, around 40% of all employees will be affected by the increase, although it says the size and timing of these effects is less certain,” says Emmett.

“We estimate the rise in the minimum wage will add just under 0.15 percentage points to growth in the quarterly rise in Q3.”

Recent analysis from TD Securities suggested that the increase in the minimum wage rate could see service sector wages rebound strongly in the current quarter.

“We see the next two wage price index (WPI) reports not only putting an end to ‘record low wage growth’ headlines, but expect wage inflation to pick up towards 2.5% per annum by Q3,” TD said.

“The recent 3.3% annual rise in minimum wage growth — the strongest since September 2011 — implies that by Q3 2017, services sector WPI could rebound at least 2.5% if not 3% per annum.”

However, while undoubtedly a welcome development for all Australian workers, Emmett, as opposed to TD, says the rebound in wage growth is likely to be modest in scale.

“Looking further out, we expect that wages will eventually respond to the tightening labour market,” she says. “We continue to think that a strong acceleration in wages remains unlikely, however, given ongoing slack in the labour market.”

So while it looks like wage growth has now bottomed, there’s still plenty of uncertainty as to how large the acceleration will be.

Australia’s June quarter WPI will be released by the ABS on Wednesday, August 16.

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