Today’s data shows that wages growth is past its peak. The annual 4.1% figure, unchanged from the previous quarter, is being held up by the Sept 2023 quarter figure of 1.3% – whereas the latest quarterly result is only 0.8%, down from 0.9%. If this figure was annualised, it produces Wage Price Index (WPI) of 3.2% – which is less than headline inflation. This is consistent with a weakening labour market, both through demand falling and supply increasing through migration.
It provides comfort to RBA that the fall in services inflation should start to accelerate over next 6 months, and suggests the right decision was made last week to keep rates on hold. This will let the economy continue to cool and allow supply side to expand. This is necessary, given we are still at full employment, although we anticipate Thursday’s labour force data will show a small increase in the unemployment rate, which will continue to rise for the remainder of this year
But while wages growth in the private sector softened this quarter, from 4.2% to 4.1%, the real story is the public sector, where wages rose slightly to 3.9% from 3.8% and now contribute 25% of overall wage growth this quarter. This is significantly higher than the contribution the same time last year (19%).
This reflects both substantial headcount increases and changes to new state and federal wage policies introduced across 2023. It expands income in the economy, and, even though private sector jobs still form the large majority of the labour market, it nonetheless needs to be pulled back.
While made for understandable reasons, the government’s wage increases for childcare workers, combined with aged care and disability care workers, collectively add up to around $30bn. This is in effect, the socialisation of wage increases in one sector of the economy through all taxpayers.
It continues the ramping up of government spending and adds to our concern that there is an ongoing disconnect between fiscal and monetary policy, which makes the RBA’s job of curbing inflation even more challenging.
Details
- 67% of all jobs recorded a wage change over the previous 12 months received an annualised increase above 3%, compared to 53% in June quarter 2023. The last time the share of jobs with an annualised increase above 3% was at this level was June quarter 2009 (68%).
- By method of setting pay, jobs covered by an individual arrangement contributed over half of WPI quarterly growth in June quarter 2024.
- By industry, annual wage growth was the highest in ‘Health care and social assistance’ (5%). The mining industry recorded the highest quarterly rise (1.3%).
- Wage growth was also broad-based at a state level. Tasmania recorded the highest annual growth of 5.1%. Three states (Victoria, SA and NT) recorded annual growth of less than 4% with Victoria recording the lowest (3.3%).
Annual wages rise 4.1% in June quarter 2024 | Australian Bureau of Statistics (abs.gov.au)
For further information
Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au