Wage growth past its peak: What impact will this have on cash rate call?

The Australian Bureau of Statistics (ABS) released its Wage Price Index (WPI) results for the June quarter of 2024.

Throughout the quarter, wages grew 0.8 per cent across the country, reaching an increase of 4.1 per cent annually. Despite growth, Indeed APAC economist Callam Pickering said “it has clearly passed its peak”.

“While wage growth remains solid, it has clearly passed its peak, with quarterly gains the lowest in more than two years. Solid wage growth continues to support Australian households, helping to absorb the impact of cost-of-living pressures,” said Pickering.

The public sector outperformed the private sector. Private wages grew 0.7 per cent over the quarter, which ABS has identified as the equal lowest rise for a sector since the end of 2021. Annual wage growth seems to be stagnating, too, with a 4.1 per cent increase over the year, following three consecutive quarters of 4.2 per cent annual increases.

Meanwhile, the public sector saw a quarterly increase of 0.9 per cent, up from 0.6 per cent last quarter. This is the highest recorded rise for the sector in a June quarter in over a decade. The last was June 2012, with a rise of 1 per cent. Public sector wages rose 3.9 per cent over the year, higher than the 3.8 per cent annual rise in the March quarter, and the 3.1 per cent recorded in the June quarter in 2023.

“The June quarter 2024 private sector rise was the lowest rise for a June quarter since 2021 and the equal lowest rise for any quarter since December quarter 2021,” said Michelle Marquardt, ABS head of prices statistics.

“The stronger June quarterly rise for the public sector was largely due to the newly synchronised timing pattern of Commonwealth public sector agreement increases.”

The increases Marquardt mentioned refer to the Fair Work Act changes that will see public service workers receive yearly wage increases for three years from March 2024.

According to the Fair Work Commission, public service workers will receive the following increases:

• 0 per cent from the first full pay period on or after 1 March 2024
• 8 per cent from the first full pay period on or after 1 March 2025
• 4 per cent from the first full pay period on or after 1 March 2026

Pickering said: “June quarter gains for the public sector were higher than usual due to the recent synchronisation of Commonwealth public sector agreements. The Commonwealth made a much larger contribution to quarter public sector wage growth than is normal.”

Over 400,000 workers are expected to be impacted by this initiative. Back in May, Treasurer Daniel Mookhey said: “This is about giving certainty for hard working families across NSW, with a 3-year offer to see pay and conditions improve. It creates a new, fair framework that can deliver a better outcome for everyone.”

Minister for Industrial Relations, Sophie Cotsis, said further: “We said we would scrap the wages cap – and we did. We promised to deliver certainty – and we have. After 12 years of neglect – of no industrial relations reforms and no award reforms – we are now fixing the system.

“The work of rebuilding essential services is now well underway. This baseline offer, lays the foundation for a fairer system for workers and their families in NSW.”

One major takeaway from the WPI data is the disconnect between wage growth and productivity growth. According to Pickering, this could have an impact on inflation and monetary policy in the future.

“Perhaps the biggest risk to Australia’s outlook for inflation and monetary policy remains the disconnect between wage growth and productivity growth. It may not stop inflation returning to the RBA’s inflation target but it will be pivotal to determining whether inflation stays there,” he said.

“Monthly and quarterly inflation will be key indicators for monetary policy going forward ... The June quarter wage figures were a little softer than market expectations and are unlikely to impact near-term RBA thinking.”

Tim Keith, managing director of Capspace has agreed that the data could impact cash rate decisions: “While the Reserve Bank of Australia (RBA) kept interest rates on hold in August, there is still a chance that it could raise interest rates in September, given inflation remains sticky, wages growth is still relatively high despite some cooling in the private sector, and business conditions in the economy remain robust."

“If the RBA does raise interest rates again, that would be favourable for returns on private credit funds, which are typically floating rate and linked to market interest rates," concluded Keith.

[Related: Wages growth past its peak: Economists]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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