Wage Growth Remains Steady at 4.1% in June Quarter
The annual pace of wage growth remained at 4.1% in the June quarter, matching the pace set in the March quarter. While some economists had hoped to see a slight decline in wage growth to reduce inflationary pressures, a slowdown in the private sector was offset by an increase in public sector wages, keeping the national average steady.
Overall, the annual pace of nationwide wage growth, at 4.1%, is still slightly slower than the 4.2% recorded at the end of 2023. This provides some relief to the Reserve Bank of Australia (RBA), which is aiming to bring inflation under control. However, Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, cautions that the current pace of wage growth is still too strong for inflation to return to target quickly, especially without an improvement in productivity growth.
Private vs. Public Sector Wage Growth
The new Australian Bureau of Statistics (ABS) data show that private sector wages grew by 0.7% in the June quarter, down from 0.9% in the March quarter. Public sector wages, on the other hand, rose 0.9%, up from 0.6%, seasonally adjusted. This increase in public sector wages is largely due to the newly synchronized timing pattern of Commonwealth public sector agreement increases.
However, in annual terms, wage growth in the private sector was still faster than the public sector. Private sector wage growth was 4.1% in June quarter 2024, following three consecutive quarters at 4.2%. This was higher than the 3.9% growth recorded this time last year. Public sector annual wage growth was 3.9%, higher than the 3.8% recorded in March quarter 2024 and 3.1% from the same time last year.
Labor Market Conditions and Wage Growth
The RBA acknowledges that the labor market remains tight, but conditions have eased somewhat since the peak of labor market tightness in October 2022. This slight easing of labor demand has contributed to the elevated wage growth. The RBA also notes that labor market conditions are a little tighter than previously thought, but are gradually moving into better balance.
Outlook for Wage Growth
Economists have differing views on the future of wage growth. EY senior economist Paula Gadsby believes that the annual pace of wage growth will keep interest rates higher for longer, as it feeds into services prices and keeps inflation "sticky." However, Commonwealth Bank economist Stephen Wu predicts that the annual pace of wage growth will "ease sharply" over the year ahead, due to a number of factors including the declining quarterly wage growth rate, the smaller Fair Work Commission wage increase, and ongoing moderation in the labor market.