Australia Q4 Wages Rise at Slowest Pace in Over 2 Years

The Australian Bureau of Statistics (ABS) released data on Wednesday showing that the wage price index (WPI) rose 0.7% in the December quarter 2024, the slowest pace in over two years. The annual increase in wages was 3.2%, down from 4.2% in December quarter 2023 and the lowest since September quarter 2022. The slowdown in wage growth was led by the public sector, with annual wage growth falling to 2.8% from 3.3% in the previous quarter. Private sector wage growth also declined, falling to 3.3% from 3.8% in the previous quarter, the lowest annual growth since June 2022.



The decline in wage growth comes as a surprise, given the strong economic recovery and low unemployment rate. However, the public sector's wage growth has been outpacing the private sector's in recent quarters, which may indicate a divergence in wage growth trends between the two sectors. This could lead to further disparities in income and living standards between public and private sector workers. Additionally, the slowdown in public sector wage growth may impact overall inflation dynamics, as wage costs are a significant component of the consumer price index (CPI).



The decline in real wages has had a significant impact on Australian workers' purchasing power and consumer spending. According to the ABS, real wages deflated by headline CPI remained 6.2% below the Q2 2020 peak but have recovered slightly following the subsidy-induced decline in headline inflation. Real wages deflated by underlying inflation remained 3.8% below the Q2 2021 peak and have flatlined for eight consecutive quarters. This decline in real wages has led to a decrease in consumer spending, as workers have less disposable income to allocate towards discretionary purchases. The ABS also reports that household consumption recorded zero growth in the September quarter 2024, influenced partly by government energy subsidies. The household saving ratio rose to 3.2% from 2.4% in the June quarter, indicating that households are prioritizing savings over consumption.

The Reserve Bank of Australia (RBA) will likely take note of the slowdown in wage growth and may adjust its monetary policy accordingly. The RBA has been concerned about the potential for wages to rise too quickly, which could put upward pressure on inflation. However, the latest data suggests that wage growth may not be as strong as previously thought, which could ease some of the RBA's concerns about inflation.

In conclusion, the slowdown in wage growth in Australia is a significant development that has important implications for inflation dynamics, income disparities, and consumer spending. The RBA will likely monitor the situation closely and adjust its monetary policy as needed to ensure that inflation remains under control.