The economic forecasts of the 2023-24 federal budget have already experienced a miss, with March quarter wages growth slowing more sharply than forecast. This was attributed to the first fall in private wages in over three years and a slump in public service increases. All these factors contributed to real wage growth vanishing in the three months to March.
According to the Australian Bureau of Statistics, the Wage Price Index (WPI) rose 0.8% in the three months to March, down from 1% in December and falling short of market forecasts for a rise of 0.9%.
On an annual basis, wages growth slowed to 4.1%, compared to 4.2% in the final quarter of 2023. Consensus was for 4.2%, aligning with the Reserve Bank’s forecast for June and just above the 4% forecast in the budget papers.
However, on a quarterly basis, with the consumer price index rising 1% in the March quarter, real wages fell behind at the beginning of the year, although they still remained well ahead of the CPI’s 3.6% rise in the year to the end of March.
Private sector wages rose by 0.8%, dipping below inflation, while the public sector saw a rise of 0.5%, seasonally adjusted for the quarter, which was well under the CPI for the three months.
In fact, the 0.8% rise was the slowest quarterly rise in over a year and came as private wages and wages in the public service both slowed sharply. The ABS noted, “This is the first time that private sector annual wage growth has fallen since the September quarter of 2020.”
“The public sector wage increase was the smallest since the March quarter of 2022, when it was also 0.5 percent. Last year’s March quarter result for the public sector reflected the implementation of new enterprise agreements and changes to wage caps. Many jobs covered by these new agreements also saw scheduled rises paid in either the September or December quarters last year instead of in the March quarter of 2024,” stated Michelle Marquardt, head of price statistics at the ABS.
The ABS identified Professional, Scientific, and Technical Services (0.7%), Education and Training (0.8%), and Construction (0.7%) as the main drivers of wage growth in the March quarter. However, all saw wages grow less than the quarterly inflation rate.
However, the data wasn’t uniform across regions. Tasmania saw a significant 1.6% jump in the quarter for a 4.9% annual rate, while Queensland saw an annual rate of 4.6% but a quarterly rate of just 0.7%.
NSW saw a 0.6% quarterly rise and a 4.2% annual rate, but Victoria saw a similar 0.6% quarterly rise but a sharply lower annual rate of just 3.6%, worse than inflation on a quarterly basis and equal to the CPI’s annual rise.
If the outcome in the current June quarter mirrors that of the March quarter, there will be a struggle for sustained real wage growth.
Treasury stated in the budget forecasts that “Moderating inflation and a pick-up in wage growth resulted in a return to positive annual real wage growth at the end of 2023. Real wages are expected to rise by ½ per cent through the year to the June quarter of 2024.”
Based on the March quarter’s WPI, real wage growth by the end of June will be smaller or non-existent.