Wages grew by 0.8 per cent in the December quarter, according to new Australian Bureau of Statistics data, lifting the annual rate of wage growth to 3.3 per cent.
In CEDA’s 2023 Economic and Policy Outlook (EPO), Chief Economist Jarrod Ball predicted wage increases would slow later this year.
“As the labour market loosens, this is likely to dampen recent wages momentum by the second half of the year,” he said.
“In the September quarter of 2022, wages grew at their fastest annual rate in almost 10 years at 3.1 per cent, driven in part by award wage increases.”
With the Fair Work Commission’s annual wage review decision coming into effect in the September quarter for all award-based wages except for hospitality, tourism and aviation jobs, the December quarter wage growth was mainly driven by jobs covered through individual arrangements.
Private sector wages were up 3.6 per cent, outpacing public sector wages, which rose 2.5 per cent.
Across Australia, the Northern Territory lagged behind the rest of the country on wage growth, rising 2.6 per cent over the year, compared to Western Australia and Tasmania, which saw the highest wage growth of 3.6 per cent.
Despite the highest wage increase in a decade, the gap between inflation and wages continued to grow, now sitting at 4.5 per cent annually.
Mr Ball warned this trend was unlikely to turn around soon.
“Real wages have been in decline and this trend will not reverse until at least 2024,” he said
“The biggest impediment to real wage rises at the present time is inflation, a point which RBA Governor Philip Lowe was at pains to emphasise at CEDA’s Annual Dinner at the end of 2022, and will no doubt continue to highlight in public communications through 2023.”
With Australia sitting behind the global inflation trend, the first CPI release for 2023 in early March will be a key indicator of whether inflation has peaked.
In his speech at the EPO event in Sydney on Friday, Mr Ball cautioned we are yet to see how much the cash rate increases will affect the unemployment rate.
“Obviously, a consequence of bringing inflation under control is that it cools the labour market,” he said.
“We’re starting to see that adjustment, we saw it at the end of last year and it’s continued in January with some of the labour market data that was out recently.
“The big question for policymakers who are looking for a soft landing is how much of that will be absorbed in the unemployment rate.”