Wages are tracking as expected
The Wage Price Index rose 0.8% in the December quarter, matching Westpac, market and RBA expectations, marking a second consecutive quarter at this pace and a clear step down from the 0.9% outcomes earlier in 2025. Health care & social assistance and education & training accounted for the bulk of wage growth, reflecting Commonwealth‑funded initiatives in aged care and early childhood education, alongside scheduled public sector enterprise agreement increases. Absent the outsized lift in health care wages, quarterly WPI growth would likely have been closer to 0.7%. While labour costs have grown faster than the WPI, key temporary drivers have now peaked. Westpac expects wages growth to continue easing, with the annual WPI slowing to around 3.0% by late 2026, though the RBA is likely to remain cautious given weak productivity outcomes.
The Wage Price Index (WPI) rose 0.8% in the December quarter, on par with Westpac’s estimate, the market consensus and what we can interpret as the RBA’s expectation. While the annual pace reportedly lifted from 3.3%yr in September to 3.4%yr in December, this was largely due to regular revisions of seasonal factors which revised down September’s print. Importantly, we have now seen two quarters of 0.8%, a step down from the 0.9%qtr prints in the first half of 2025, with the six-month annualised pace dropping from 3.7%yr in June to 3.2%yr in December.
The ABS noted a higher proportion of jobs recorded a wage increase this December quarter compared to 2024; 21% in 2025 vs. 16% in 2024. However, the average was less at 3.5% compared to 3.6% in 2024.
Private sector wages increased by 0.8%qtr, matching both the June and September quarters, seeing the annual pace remain broadly stable at 3.4%yr. It is worth nothing that the measure of private sector wages including bonuses softening, with the annual rate dropping from 3.8%yr in September to 3.3%yr in December, the slowest pace since 2.6%yr in March 2022.
The private sector saw a larger share (19% of jobs) get a wage increase this December compared to a year earlier (14%) but the wage increase was the same at 3.7%.
Wages in the public sector also lifted 0.8%qtr, raising the annual pace from 3.9%yr in September to 4.0%yr in December. The most recent peak in public sector wage inflation was 4.3%yr back in December 2023. The share of public sector jobs getting a wage increase in December increased to 29% from 23% a year earlier but the average wage increase moderated from 3.3% to 3.1%. over 2025, we have seen a drop in the average wage increase paid in a quarter: it was 3.3% in March, then lifted to 3.5% in June and now it has been 3.1% in both the September and December quarters.
It was again the state governments that made the largest contribution to public sector wages growth, reflecting the overall number of employees and total wage expenditure (state governments are the largest public sector employers) and the size of any wage increase that occurred. In the December quarter, state government contributed 89% of the public sector wage growth. Meanwhile, the Federal government contributed just 10% – most Commonwealth employees get a wage increase in the June quarter, and this year, that increase was responsible for 44% of the quarterly lift in public sector wages.
Wages are tracking much as we and the RBA were expecting. There are, however, a couple of interesting issues to consider. The largest contribution to the print was 0.18ppt from health care & social assistance. The next largest was a 0.07ppt contribution from education & training.
The ABS noted that healthcare & social assistance was the main contributor to wages growth for both the private (health care & social assistance may be public funded but the service is often via a private provider) and public sector this quarter. There were two major Commonwealth funded initiatives in aged care and early childhood care & education, which led to wage increases the private sector for this industry. The ABS also noted that growth in the public sector was largely related to scheduled enterprise agreement rises paid to frontline health care workers across NSW.
Health & social assistance wage increases have been outstripping other industries for some time; it reported the highest annual pace at 4.4%yr. Westpac seasonally adjusts the industry data, and this finds this sector had the largest wage increase in the December quarter of 1.0%. The next highest at 0.9% were mining, utilities, construction, transport & warehousing, education & training, and other services.
Had it not been for the boost from health care & social assistance wages (i.e. if the increase in this sector was more like the national average) we believe the WPI increase in the quarter would have been closer to 0.7%.
Overall, Westpac is not particularly concerned about inflationary risks from wages. While total labour costs as reported in the National Accounts have been growing somewhat faster than the WPI, there are several factors that suggest the total wage bill measures of labour costs are set to moderate. In particular, the escalation in the Super Guarantee has added 0.5ppt/yr to overall labour cost growth in recent years but we are now at the legislated peak rate, there will be no increase this year, or any year ahead as the legislation currently stands.
Nevertheless, we expect that the RBA will continue to assess that labour cost growth is still strong enough to present a concern to the inflationary outlook given their relatively pessimistic view about productivity.
Westpac is expecting the annual pace of the WPI to be down to around 3.0%yr by December quarter of 2026.
Wages by bargaining stream
Westpac has long believed focusing on wage inflation by wage bargaining stream can help to understand how wages respond to the economic cycle. Long term readers would know that the Australian labour market is split into three categories of pay setting methods:
- Awards,
- Enterprise agreements, or
- Individual arrangements.
In original terms, the WPI lifted 0.7% in the December quarter. The largest share of Australian wage adjustments tends to occur in the September quarter with July being the start of the new financial year. The following data is reported in original (not seasonally adjusted) terms.
Of the 0.7% increase in the WPI, jobs covered by Individual Arrangements made the largest contribution at 0.35ppt, compared to 0.31ppt for Enterprise Agreements and 0.07ppt for Awards/Minimum wage. With most individually arranged pay setting occurring in the private sector, this stream has an outsized influence on private sector wages.
Westpac estimates that the average wage increase for Individually Arranged wages was 0.7% in December, on par with December 2024 thus holding the annual pace flat at 3.1%.
For the December quarter, Westpac estimates that Enterprise Agreement wages lifted 0.8%, up modestly from the 0.7% increase in December 2024 and thus seeing the annual pace lift from 3.7%yr to 3.9%yr.
The September quarter is also when we see the annual adjustment to Awards and the Minimum Wage. In 2025 the Fair Work Commission Annual Wage Review provided a 3.5% increase 1 July 2025. This was lower than the 3.75% provided in 2024 and the 5.75% decision in 2023. We expect that the 0.5% increase in Awards rates of pay in the December quarter would relate to the two major Commonwealth funded initiatives in aged care and early childhood care & education which we noted earlier. The 0.5% increase this year was larger than the 0.1% increase in December 2024 taking the annual pace to 3.9% (the fastest pace since 5.4%yr in June 2024) from 3.7%yr.
Wages by industry
Industry contributions to wage growth reflect the size of the industry as defined by total wage expenditure as well as the size of the wage change that occurred.
The following data is represented in seasonal adjusted estimates produced by Westpac:
- Healthcare & social assistance had the strongest quarterly and annual pace of wage inflation (1.0%qtr/4.4%yr).
- Public administration & safety and manufacturing were tied for the lowest quarterly rise in wages at 0.5%qtr but (0.6%qtr) but public administration still reported an above average annual pace (4.1%yr) compared to a very anaemic annual pace in manufacturing (2.9%yr).
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