Australia’s December quarter Wage Price Index (WPI) will be released later today.
Given the implications for household spending, broader economic growth, labour market conditions and the outlook for inflation and official interest rates, the WPI is now arguably the most important data release in Australia, especially at time when financial markets are fully priced for the RBA to cut Australia's cash rate by the middle of next year.
Put bluntly, the trajectory of wages will go a long way to determining how the Australian economy will perform in the period ahead.
After falling to the lowest levels on record in 2016 the WPI has started to edge higher in recent quarters, helped in part by tighter labour market conditions and large increases in Australia’s minimum wage rate.
However, while some improvement has been seen, few, including the RBA, expect there'll be a meaningful acceleration in wage pressures over the coming years.
Here's the state of play.
- The WPI measures changes in ordinary hourly rates of pay. It does not incorporate the number of hours worked or compositional shifts in the workforce. Just hourly wage rates excluding bonuses.
- In the September quarter, private sector wages -- where the vast majority of Australians are employed -- grew by 0.55%, leaving the change on a year earlier at 2.14%, up from 2.07% in the year to June.
- Public sector wages grew by a slightly faster 0.61% over the quarter, and by 2.47% over the year.
- Combined, the WPI grew by 0.62% for the quarter, leaving growth over the year at 2.29%, the highest level in three years. The quarterly increase was also the largest since the first quarter of 2014.
- With consumer price inflation (CPI) lifting by 1.9% in the year to September, real wages grew by 0.4% over the same period.
- The ABS said the quarterly lift was "mainly influenced by increases to the national minimum wage, regularly scheduled enterprise agreement increases, modern awards and salary reviews timed to coincide with the financial year".
- Without adjusting for seasonal patterns, the ABS said year-ended wage growth ranged from 1.8% for mining and retail workers to as high as 2.8% for those in the health care and social assistance sectors.
- By state and territory, the WPI in Western Australia grew by just 1.8% over the year. At the other end of the spectrum, workers in Tasmania saw hourly pay rates lift by 2.6%, the fastest increase across the country.
- In the December quarter, economists expect a similar outcome to what was reported in the three months to September.
- The median forecast looks for a quarterly lift of 0.6%, leaving the increase over the year almost unchanged at 2.3%. Individual forecasts for the year-ended rate range from a gain of between 2.2% to 2.4%.
- In the year to December, Australian CPI grew by 1.8%.
- In the RBA's latest forecasts, it saw Australia's WPI increasing by 2.4% compared to a year earlier.
- The RBA has previously stated that year-ended growth in the WPI of 3.5%, accompanied by some improvement in labour productivity, would likely be required to lift underlying CPI back to the middle of its 2-3% target.
- While Australia's unemployment rate fell to 5% in December, leaving it at the lowest level since June 2011, that's still above what many regard as being Australia's current non-accelerating inflation rate of unemployment, or NAIRU for short.
- This is the level where labour market conditions tighten sufficiently to lift wage pressures.
- With underemployment in Australia still elevated, it underlines why economists do not expect a meaningful acceleration in wage pressures in the foreseeable future.
- The RBA is only forecasting the WPI to increase by 2.6% per annum by the middle of 2021, helping to explain why it does not see underlying CPI reaching the midpoint of its target over this period.
The Q4 WPI will be released at 11.30am AEDT.
Business Insider will have all of the details and potential ramifications as soon as the data hits the screens.