Wage growth ‘the lowest in 2 and a half years’: How will the RBA respond?

According to the Australian Bureau of Statistics (ABS) Wage Price Index (WPI), the last quarter witnessed a 0.8 per cent growth in wages across the country. This is 3.5 per cent higher than the same period in 2023.

While this might seem promising, it’s the first time annual growth was below 4 per cent since the June quarter last year and the lowest quarterly growth in over two years.

“While quarterly wage growth remains solid, it is well past its peak, with quarterly gains the lowest in two-and-a-half years. Nevertheless, solid wage growth continues to support Australian households, helping to absorb the impact of cost-of-living pressures,” said Indeed’s APAC economist Callam Pickering.

Under half (45 per cent) of jobs saw a wage change throughout the quarter, just below September quarter 2023 (46 per cent). Private sector (up 0.7 per cent) saw less growth than the public sector (up 0.9 per cent).

“Both private and public sector wages rose by 0.8 per cent in the September quarter, but for the first time since March 2021 annual growth in public sector wages exceeded the private sector,” said Pickering.

“Public sector wages, and employment for that matter, tend to be less sensitive to market factors, often resulting in less volatility in wage growth from year-to-year.”

Hourly wage change saw a decent drop from the year prior. The average size of hourly wage change was up 3.7 per cent this quarter, compared to 5.4 per cent this time last year.

Michelle Marquardt, ABS head of prices statistics, said: “Wage rises for many jobs can be directly or indirectly linked to the outcomes of the Fair Work Commission Annual Wage Review decision. The latest decision of a 3.75 per cent wage increase paid from 1 July 2024 was lower than the September quarter 2023 increase of 5.75 per cent. It was also lower than the Commission’s September quarter 2022 awarded increase of between 4.6 per cent and 5.2 per cent.”

ANZ’s senior economist Catherine Birch said that wage growth for the quarter was below just about everyone’s expectations. From the major to the RBA and the overall market, more growth was predicted.

How will the RBA respond?

ANZ said that these figures reinforce its stance on a February interest rate drop from the central bank.

“The six-month annualised rate was steady at 3.2 per cent and wage growth has slowed across awards, enterprise bargaining agreements (EBAs) and individual arrangements, which points to a broad-based slowdown. This may give the RBA more confidence that wages growth is returning to a pace consistent with its inflation target band, in the face of continued weakness in productivity growth,” said Birch.

“We continue to expect the RBA will keep the cash rate on hold at 4.35 per cent until the first 25bp rate cut in February 2025. The risks remain tilted towards a later start to cuts, despite today’s wage data, given the slow pace of disinflation and labour market resilience.”

Westpac disagrees, with senior economist Justin Smirk penning a rate drop for June 2025.

“As the Wage Price Index came in just as Westpac expected, we see no reason to change our end 2024 forecast of 3.2 per cent yr and the June 2025 forecast of 2.9 per cent yr. The RBA is currently forecasting annual wages growth to print 3.4 per cent yr for end 2024 and hold at that rate through to June 2025,” he said.

Pickering agreed that a cash rate cut is off the table for the time being. With inflation still high and productivity not at the desired level, the Reserve Bank is likely to hold off until figures see decent change.

“Softer annual wage growth will obviously be welcomed by the Reserve Bank, and highly unwelcome by Australian households. Nevertheless, wage growth is still quite high and likely to be a key source of domestic inflationary pressures,” he said.

“Our view is that the RBA will maintain a tightening bias until they see sufficient progress with regards to service sector inflation and a considerable pick-up in productivity growth. Not enough progress has been made on that front for the RBA to be confident in their ability to a) return to their 2–3 per cent inflation target and more importantly b) stay there.

“The latest wage growth indicators that wage pressures remain elevated in key service sector industries, potentially contributing to price rises in those service areas. It also confirms that wage growth remains well in excess of Australia’s productivity performance. And so, on balance, you’d have to conclude that Australia’s wage dynamics right now are not consistent with cutting the cash rate.”

Related: Household spending won’t normalise until rates are cut

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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