Australia wage growth hits decade-high

Annual wage growth is expected to peak at 4 per cent at the end of this year

Australian wages grew at the fastest annual pace in a decade last quarter, although quarterly gains missed forecasts, in a result that offers some temporary solace for policymakers who worry a price-wage spiral may lead to more rate hikes.

Figures from the Australian Bureau of Statistics yesterday showed its wage price index rose 0.8 per cent in the March quarter from the previous quarter, just under forecasts of a 0.9 per cent increase.

Annual pay growth, however, accelerated to 3.7 per cent, from a revised 3.4 per cent the previous quarter, compared with forecasts of 3.6 per cent.

Investors responded by pushing the Australian dollar down 15 ticks to US$0.6645 and kept their bets of a 80 per cent chance that the Reserve Bank of Australia (RBA) would keep rates steady next month. However, they do see a higher chance of a move in August or September.

The RBA has already hiked interest rates a hefty 375 basis points to an 11-year high of 3.85 per cent as inflation, which was running at 7 per cent, remained well above the bank's 2-3 per cent target range.

"At the margin, a slightly higher annual rate than expected but probably not enough to alarm the RBA who are paying close attention to wages, prices and productivity measures," said Tony Sycamore, an analyst at IG.

The central bank has flagged more rate rises might be required, saying a rise in productivity growth, which has slumped to the lowest since the 1970s, would be needed to ensure wage growth remains consistent with inflation target.

Annual wage growth is expected to peak at 4 per cent at the end of this year before easing back to 3.7 per cent by mid-2025.

Economists are also watching the government's decision to lift the minimum wage this year and whether the rise would match inflation, an outcome that would further complicate the job of the RBA to bring inflation to heel.

The centre-left Labor government has already announced a 15 per cent pay increase for aged care workers.

The ABS data showed wages in the public sector picked up to an annual rise of 3 per cent while growth in private sector wages increased 3.8 per cent.