![Shoppers in a supermarket in Canberra. The rising cost of living has put pressure on the government over sluggish wage growth.](https://media.guim.co.uk/dd5924b9b36dfec51100e051fe331c203fce5ca9/0_0_6118_3671/1000.jpg)
Australian wage growth barely budged in the March quarter, with salaries increasing at less than half the headline inflation rate, stoking concerns pay packets continue to shrink in real terms.
During the first three months of 2022, the seasonally adjusted wage price index (WPI) rose 0.7% from the December quarter to be 2.4% higher than a year earlier. Economists had tipped a quarterly and yearly rise of 0.7-0.8% and 2.5%, respectively.
The WPI increase – the most in a little more than three years - fell well short of consumer price inflation for the March quarter, with the underlying inflation rate of 3.7% the highest since 2009, with the headline CPI gauge that including more volatile price movements at 5.1%.
Wages rose in the March quarter at the fastest pace since the end of 2018, at a 2.4% annual pace. Headline inflation though was 5.1% and the underlying rate 3.7%, implying real wages kept shrinking. #auspol #ausvotes pic.twitter.com/OxubFqwN1V
— Peter Hannam (@p_hannam) May 18, 2022
The latest data comes just three days before polls close for an election campaign in which wage increases have been one of the more contentious issues.
Labor leader Anthony Albanese has said he “absolutely” supported workers’ salaries keeping up with inflation. Prime minister Scott Morrison, though, warned that too-rapid wage rises would stoke inflation and prompt the Reserve Bank to ratchet up its interest faster, hurting borrowers.
Jim Chalmers, Labor’s shadow treasurer, said in a tweet the gap with headline consumer prices at 2.7% was the biggest in 20 years.
The Actu said the gap between inflation and workers’ pay rises meant workers were on track to be $4,000 worse off on average this year in real terms, or five times the loss in 2021.
Actu secretary Sally McManus said the WPI figures were “a disaster for working people”. The union body was on Wednesday before the Fair Work Commission to argue its claim for a 5.5% annual increase for minimum wage earners.
Morrison responded to Wednesday’s data, saying the increase was “slightly above the 10-year average. We’ve seen those wages, start to rise again but the challenge is inflation.”
He likened salaries to a list of things “you can’t control [such as] global events, global forces, oil prices, wars in Europe, disruptions of supply chains and the pandemic shutdowns in China”.
Morrison added the election, too, “won’t change whether it’s raining or not”.
Earlier in May, the RBA said its liaison teams had detected faster rises in salaries as employers scrambled to retain and attract staff as the jobless rate sank to levels not seen since the 1970s. Even so, the central bank expected wage growth excluding bonus to lag inflation by about 3 percentage points and only catch up in 2024.
“The annual rate of wage growth has risen for each of the last five quarters from a low point of 1.4 per cent in December quarter 2020,” Michelle Marquardt, head of Prices Statistics at the ABS, said in a statement.
Public sector wage increases continued to drag on the overall numbers, advancing 2.2% from a year earlier. Private sector wages increased 0.7% for the quarter and 2.4% for the year.
Investors viewed the weak wages growth as trimming the odds of a big rate rise by the Reserve Bank at its June meeting. The Australian dollar rapidly shed about a quarter of a US cent as the greenback’s higher rates made that currency more attractive.
Sarah Hunter, KPMG’s senior economist, said the trajectory of increases annual growth will approach 3% by the end of the year. The RBA’s forecast for headline inflation is 5.9%.
The WPI “is off the pace with regard to price inflation, meaning real wage erosion is still happening,” Hunter said. “These figures by themselves are unlikely to push the RBA into a more aggressive pace of rate rises – though we still expect to see four more moves this year, to take the cash rate to 1.25%.” After the May rise, it is now at 0.35%.
Sean Langcake, head of Macroeconomic Forecasting for BIS Oxford Economics, also expected the RBA to raise rates at next month’s meeting on the expectation salary rises will quicken.
“The ABS noted the average size of wage increases has picked up to a relatively fast pace of 3.4%,” Langcake said. “But only a small share of jobs received a change in wages in the quarter; this is typical in March, but was likely exacerbated by Omicron disruptions.”
Catherine Birch, a senior ANZ economist, said one positive was that the average size of private sector hourly wage rises was the highest since June 2013. However, “this was offset by a smaller share of jobs receiving pay rises”, she said.
The ANZ expect a minimum award wage increase of 4% or higher, which would show up in the September quarter.
“If realised, this would be the largest rise since 2010, albeit still well below headline inflation,” Birch said.
“As such, we still expect wage growth to accelerate through 2022 and 2023, although real wages will continue to fall for some time.”
Labour market conditions will be reported by the ABS on Thursday. The April jobless rate is expected to drop a bit below the 4% mark, making it the lowest since the mid-1970s.