Australia’s Annual Wage Growth in 2022 Failed to Reach Expectations

Staff pour drinks at a hotel bar in Perth, Australia, on Feb. 5, 2021. Stefan Gosatti/Getty Images

Australia’s wage growth hit 3.3 percent in the 12 months to December 2022, falling short of market expectations despite its indication of a positive development.

According to the Australian Bureau of Statistics (ABS), the wage price index rose 0.8 percent in the December 2022 quarter.

ABS head of prices statistics, Michelle Marquardt, said the growth for the December quarter was below the 1.1 percent increase in the previous three months.

“It was, however, higher than any December quarter increase across the last decade,” she said.

Before the release of the new data, the market expected a one percent growth for the quarter and a 3.5 percent rise for the year ending December 2022.

While wages continued to improve, the average Australian worker actually brought home less money as high inflation bit into their budget.

The annual inflation rate reached 7.8 percent in the December quarter, creating a gap of 4.5 percent between price and wage growth.

Private Sector Leads in Wage Growth

The private sector reported a 0.8 percent increase in wages during the quarter and a 3.6 percent annual growth.

On the other hand, public sector wages climbed by 0.7 percent in the three months to December and 2.5 percent annually.

The ABS said while the increases in both sectors were somewhat similar, the private sector remained the driver of Australian wage growth due to its much larger size.

Furthermore, there was evidence that competition for labour was another factor pushing up wages in the job market.

A bar staff prepares drinks for patrons in a bar in Melbourne, Australia, on Oct. 28, 2020. William West/AFP via Getty Images

During the quarter, workers who entered into an individual arrangement with their employers reported higher wage growth than those covered by enterprise agreements.

As jobs covered by an individual arrangement are market sensitive and react more quickly to labour market conditions, the above development indicated that employers had raised wages to retain or attract skilled workers in a tight job market.

Among the industries, accommodation and food services saw the most significant quarterly growth at 1.7 percent, followed by manufacturing at 1.3 percent, and transport, postal and warehousing at 1.2 percent.

Meanwhile, the Australian Capital Territory led the country with a 0.9 percent lift in wages, while New South Wales, Victoria, and Queensland were not far behind with a 0.8 percent rise.

Impact of December Quarter Wage Growth on Interest Rates

As wage growth is an important factor influencing the Reserve Bank of Australia’s (RBA) interest rate decisions, economists and market analysts have shared their views on how the central bank will react to the latest wage data.

BIS Oxford Economic head of macroeconomic forecasting Sean Langcake said the lower-than-expected wage growth signalled to the RBA that a wage-price spiral was not occurring.

A wage-price spiral is a situation in which wage increases cause prices to go up, eventually leading to more wage rises.

“Nevertheless, the labour market continues to track in a very tight position,” he said in comments obtained by AAP.

“The wage price index is a narrow measure of wage growth, and these data will not completely allay the RBA’s concerns over a wage-price spiral.”

Echoing the sentiments, analysts at ANZ banks said while the RBA would be comfortable that a price-wage spiral did not emerge, it would not stop the current interest rate hiking cycle.

The bank forecasted that the official cash rate would continue to go up and peak at 4.1 percent, a 0.75 percent increase from the current 3.35 percent.