‘Wage pressures build’, but pay growth still contained

Wages climb at the fastest quarterly pace since 2014, but not enough to keep up with inflation.

With inflation on the march and pay growth still limp, real wages are set for a period of going backwards. Picture: NCA NewsWire / Nicki Connolly

A tight labour market and worker shortages in sectors such as hospitality and retail helped push wage growth higher over the three months to December, but still left salaries only 2.3 per cent higher than a year earlier and well shy of inflation.

The 0.7 per cent increase in the Australian Bureau of Statistics’ wage price index was the quickest quarterly pace since early 2014, the latest figures revealed, but economists said there was little evidence salaries were accelerating at a rate that would bring forward Reserve Bank rate hikes.

Private and public wages growth over the quarter ticked up to 0.7 per cent over the quarter, bringing the annual increase in private sector pay to 2.4 per cent – steady on the September quarter – while public wages climbed by 2.1 per cent year on year, up from 1.6 per cent.

Josh Frydenberg said the latest data showed “wages continue to strengthen” but they underplayed the pay rises workers were receiving as they took on new job opportunities amid a recruitment frenzy.

“Of course we know cost of living pressures are real for many families and that is why the Morrison government continues to deliver the largest tax cuts in more than two decades which is helping to boost household disposable income by 11.7 per cent since the start of the pandemic,” the Treasurer said.

ABS head of prices statistics Michelle Marquardt said “the proportion of pay rises reported over the December quarter was higher than usually seen at this time of year”.

Ms Marquardt said “the implementation of the last phases of award updates and state-based public sector enterprise agreements, on top of a rising number of wage and salary reviews” drove the quarterly pay increase.

The still lacklustre headline wage increase figure masked some rapid increases in pay for food and accommodation workers – who enjoyed a 3.5 per cent annual rise – and retail industry employees, who received an outsized 1.2 per cent pay increase in the December quarter alone.

Ms Marquardt said “wage pressure continued to build over the December quarter for jobs with specific skills”.

“Private sector wage growth occurred across a broad range of industries as businesses looked to retain experienced staff and ­attract new staff,” she said.

Across the country, Tasmanians recorded the highest annual wage growth at 3 per cent, and Western Australia the lowest at 2 per cent.

The annual lift in the wage price index remained well below inflation at 3.5 per cent and so reflected a decline in real terms.

Opposition Treasury spokesman Jim Chalmers said “under this government, the cost of living is skyrocketing, real wages are going backwards, and working families are falling further behind.

“This is the Prime Minister and the government for higher prices and lower wages, and Australians finding it that much harder to make ends meet.”

NAB economist Taylor Nugent said the ABS wage data was “consistent with ongoing gradual acceleration in wages growth”, but pay pressures would continue to grow through 2022.

“These data reflect wage rises in the three months to November, when the two largest states were in lockdown, and since which time the labour market has continued to tighten,” he said.

Goldman Sachs chief economist Andrew Boak said wage growth would accelerate to 3 per cent this year, but broader labour costs would rise closer to 4.5 per cent, and push consumer price inflation “well above 3 per cent”.

The Reserve bank has said wage growth of at least 3 per cent is consistent with inflation within the 2-3 per cent target band.