Summary:

Wage growth is rebounding;

But it's not as fast as predicted by the financial markets or the Federal Reserve of Australia;

This should increase people's confidence that inflation will not get out of control;

But at least there will be another two quarters of interest rate hikes.

Everyone is interested in changes in wages

For financial markets and economists, it is important to understand the scale of wage growth. Wages are the main source of income for most households. Therefore, the higher the salary increase, the more money consumers spend. Salary growth is also the biggest cost for many companies. Any increase in labor costs must be absorbed or passed on to customers by the enterprise.

In both aspects, changes in wage growth will have a significant impact on inflation. The difficulty lies in the fact that changes in inflation can also affect wage growth. Workers hope to compensate for price changes. In addition, periods of rising inflation usually indicate that demand growth in the economy is stronger than supply. Usually, this supply-demand imbalance not only affects the market for goods and services, but also the job market. Therefore, factors that lead to rising inflation can also drive higher wage growth.

Therefore, changes in wage growth may have significant macroeconomic impacts. Therefore, they are one of the most closely watched economic data, especially during periods of rising inflation. Given the increasing focus of the Federal Reserve of Australia on the inflation outlook, this is particularly true of the fourth quarter wage price index (or WPI, the best indicator of wage fluctuations).

The result is that wage growth is on the rise, but not at the speed expected by the Australian Federal Reserve and financial markets. The quarterly growth rate of 0.8% is only slightly higher than the end of 2021. The annual wage growth rate of 3.4% is consistent with the inflation rate of 2-3%. One reason why wage growth has not been strong is that public sector wages are restricted. However, in the year ending December 2022, private sector wage growth still only increased by 3.6% (compared to 0.9% in the current quarter). In 2022, only two industries (wholesale trade and manufacturing) saw wage growth exceeding 4%.