Much-awaited wages data out: What to expect from RBA next month?

Highlights

• The latest data from the Australian Bureau of Statistics (ABS) reveals that wages have risen 0.7% in the March 2022 quarter.
• PM Morrison claims that a decent rise in wages could be harmful to the economy, fuelling speculations of higher interest rate hikes.
• Labor leader Anthony Albanese sees wage growth as the party’s priority.

Australian workers have reason to rejoice as the latest wages data by the Australian Bureau of Statistics (ABS) reveals that wages have risen 0.7% in the March 2022 quarter. However, the rise is dismally low compared to the soaring inflation rate currently being witnessed across the country. Wages growth rate needs a strong revival to avoid a drop in living conditions.

The ABS data revealed that annual wage growth stands at 2.4%, while the annual inflation was reported to be 5.1% in the March quarter. However, the annual wage growth rate was the highest since December 2018 in the last quarter. Consecutive rises in the annual wage growth over the last five quarters have accumulated into a much-needed momentum in wages.

Higher wages are often accompanied by tighter monetary policy conditions. The latest revelations by the Reserve Bank suggest that it was on track to raise the cash rate by as high as 40 basis points. However, considering the highly sensitive borrowing market in Australia, it stuck to a rate hike of 25 basis points. With the first rate hike already done, the Reserve Bank of Australia (RBA) might take a more aggressive stance in the upcoming policy meetings.

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A snapshot of the wage growth data

• Private sector wages driving the growth

Growth in private sector wages outran that in the public sector, with the former rising by 0.7% and the latter by 0.6% in the March 2022 quarter. Regular wage and salary reviews helped maintain the growth in wages seen in the private sector. Companies resorted to income hikes to retain their workforce during the period as the worker supply crunch became more pronounced. Skilled workers remained highly in demand, continuing a trend seen ever since international borders were closed.

• Award based jobs helping private sector wages

The wage hikes in the private sector have occurred in a much higher proportion during the September quarter, which also marks the start/end of the financial year. Thus, businesses utilised the year-end profits to provide wage hikes to employees. Employers were able to negotiate short-term wage reductions shortly after the shock of the pandemic hit labour markets in 2020.

These wage reductions were reversed during the September and December 2020 quarters. However, the average size of private-sector wage hikes seen during the March 2022 quarter was the highest since June 2013 quarter. Market sensitive jobs with a high demand for workers drove the highest rise in wages.

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• Industry-wide variation visible

The rental, hiring and real estate services recorded the highest annual wage growth rise of 3.1%. Meanwhile, annual wage growth was the weakest in the electricity, gas, water, and waste services industry at 1.5%. The large gap between both industries signifies the disparity among industries, showcasing how inflationary pressures have a more jarring effect on certain sections.

Wages growth: An integral part of federal elections

Campaigning leaders have highlighted their beliefs on wage growth, despite having a difference in opinion on the same. Labor leader Anthony Albanese has advocated for wage hikes amid the rising cost-of-living pressures. He believes that citizens should be able to get by amid surging inflation, for which Labor has a plan to lift wages.

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Meanwhile, Prime Minister Scott Morrison has taken a rather radical approach and stated that a wage hike could be devastating for the economy. He believes that rising wages could further heat up inflation in the country, making a declaration that can cost him an election win. Opposition leader Anthony Albanese’s claim to raise wages stands tall compared the PM Morrison’s stance on wages.

The latest wages data has highlighted that the ongoing wage increments are still far behind the soaring inflation rate. RBA governor Phillip Lowe earlier stated that wages are not expected to rise faster than inflation until the end of 2023. However, till then, the central bank’s focus would be to ensure that an upside wage pressure does not feed into inflation. The RBA could take a more aggressive stance in its next meeting, continuing its efforts to remove the monetary stimulus received by the economy.

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