1. Wages growth slows…but still at 10-year high

Wages increased by 0.8% in the June 2023 quarter, equating to 3.6% year on year which was slightly below expert predictions.

If you include bonuses, the pace of growth slowed to 3.7% year on year, from 3.9% last quarter. On an annual basis, this means wages growth is running at 3.4%, well below the peak of 4.3% in September last year but still around a 10-year high. Before the pandemic, it was around 2% a year. The tight labour market and high inflation have helped to increase wages in recent years.

The main drivers in the June quarter were construction (+1.3%) and professional, scientific and technical services (+0.7%).

Australia Wages Growth

Source: Macrobond, AMP

2. Real wages growth is improving as inflation slows…but still in negative territory

Once you add inflation into the mix, it’s a very different picture with real wages going backwards. But as inflation slows, the rate of decline is slowing and is now at -2.4% year on year, up from a low of -4.4% in December last year. And we should see further improvement in real wages from here as inflation slows, which is positive for consumer sentiment and household purchasing power.

Australia Wages Growth

Source: ABS, AMP

3. Private sector driving wages growth…but get set for a shift

Wages growth in the private sector was up by 3.8% over the year to June, compared to 3.1% in the public sector. But we’re likely to see a turnaround as increased unemployment affects the private sector more.

Australia – Wages growth across sectors

Source: ABS, AMP

What wages growth means for inflation…and rates

Wages should grow more strongly in the September quarter due to the impact from the increased minimum and award wages brought in on 1 July 2023.

We see growth peaking at just under 4% later in the year before a slowdown in the labour market takes some heat out. But wages growth could still be higher than expected, depending on the speed of the slowdown and any broader wage gains stemming from the minimum and award wage changes.

While wages aren’t increasing at a pace that would threaten the Reserve Bank’s 2-3% inflation target, they’re still a risk to inflation, particularly as productivity growth remains low.

So, while the June figures allow the Reserve Bank to breathe a sigh of relief and keep rates on hold, any signs that wages growth is reaccelerating would be a cause for concern.

This article has been written by Diana Mousina, Deputy Chief Economist at AMP.

Important note: While every care has been taken in the preparation of this document, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM), AMP Limited ABN 49 079 354 519 nor any other member of the AMP Group (AMP) makes any representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.
Current as at Sep 2023

Written by

Inspired Money