Aust. wage increases more modest than expected
Wages lifted 0.8% in December, less than market expectation for a 1.0% and Westpac’s 1.1%. Wages continue to disappoint suggesting downside risk to our forecast peak of 4.5%yr.
The Wage Price Index (WPI) gained 0.8% in December, less than market expectation for a 1.0% rise and Westpac’s 1.1% forecast. This was also a step down from the 1.1% increase in September but it is worth noting that September was revised up from an original print of 1.0%.
While it was a clear step down in the pace of wage inflation the ABS noted that the December increase in hourly wage rates was higher than any December quarter increase in the previous decade. This follows on from the September and June 2022 quarter increases which were also higher than their comparable quarters back to 2012.
This pick-up in quarterly increases has taken the annual pace to 3.3%yr, a modest increase from 3.2% in September but well up on the 2.4%yr pace at December 2021 and the fastest annual pace since December 2012.
Private sector wages lifted 0.8% in the quarter to again be slightly stronger than the public sector wage increase of 0.7%. As we have been seeing since mid -2021 the annual pace of private sector wage growth of 3.6%yr remains significantly faster than public sector wage growth of 2.5%yr.
During the COVID crisis the timing of wage increases became more spread out as the timing of minimum/award wage increase was spread out through the year base on industries rather than mostly being lumped into the September quarter. In September the proportion of jobs getting a wage increase rose to 46%, the largest percentage on the data back to 2012, with an average pay increase of 4.3% (also the largest wage increase back to 2012).
For December the proportion in the private sector getting a wage increase fell back to 21%, down on the 23% in 2021 but still stronger that the average of 15% from 2012 to 2019. The average wage increase moderated a touch to 4.0% in December, softer than September but only beaten for second place by a 4.1% increase in June 2012. On average it does appear that those getting a wage increase in December tend to get a smaller increase compared to those getting an increase in September but this is not always the case. In 2020, December those getting a wage rise saw a larger than average increase than those who had a wage rise in September (2.7% vs 2.4%) while the September and December wage increase were the same as each other in 2015 and 2016.
Turing to how wages are negotiated, jobs covered by an individual arrangement were the main drivers of wage growth in December. Fewer jobs covered individual arrangements received a wage increase in December compared to jobs covered by an enterprise agreements. However, jobs covered by an individual arrangements received higher average increases.
We have been focusing on individual wage arrangements as they are seen to be more market sensitive and thus more reactive to changes in labour market conditions. Various surveys suggest that ongoing robust demand for labour, and the competition for skilled labour in particular, resulted in employers granting larger wage increase than usual to retain and/or attract workers for key roles.
This quarter the ABS also noted that the proportion of jobs covered by an individual wage arrangement has increased steadily since 2017. Back in December 2017 the proportion of jobs covered by an individual arrangement was 36%, lower than the proportion covered by an enterprise agreement at 49%. By December 2022 the proportion covered by both pay setting methods was the same at 43%.
As we have noted earlier the average increase in award/minimum wages for 2022 was between 4.6% and 5.2%. The increases in award wages were scheduled to be paid in two stages, with award-based rises to hospitality, tourism and aviation jobs paid in December. All other award-based rises were paid in the September which is part of the reason why we historically see a surge in wage increases in the September quarter.
Based on original data the ABS reported that health care & social assistance (0.7%), manufacturing (1.3%) and professional, scientific & technical services (0.6%) were the main contributors to growth reflecting both the size of these industries and the number and size of wage increases.
In the following analysis Westpac has seasonally adjusted the original data.
The strongest quarterly gain in wages was in accommodation & food services at 1.3%, the weakest was in administrative & support services at 0.4%. In terms of annual wage inflation the fastest pace can be found in wholesale trade at 4.2%yr which is the fastest since December 2012; the softest was found in education & training at 2.4%yr.
By state the strongest quarterly gain in wages was the 0.9% increase in NSW, the softest was a 0.6% increase in Vic. The state with the fastest pace of annual wage inflation was WA at 3.6%yr, the softest was found in both Vic and NSW at 3.3%yr.
We have now seen two quarter where wages growth has come in under expectations. This has clearly put downside risk on our current forecast for wages to peak at 4.5% in the second half of this year.
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