Softening wage growth opens door for early 2025 rate cut: AMP
Australian wage growth for the September quarter has indicated that wage growth has slowed from its peak, says AMP economist My Bui.
The Wage Price Index (WPI) rose 0.8 per cent in the September quarter, and 3.5 per cent for the year, according to seasonally adjusted data released yesterday by the Australian Bureau of Statistics.
Australian Bureau of Statistics’ head of prices statistics, Michelle Marquardt, said this was the first time annual wage growth has fallen below 4 per cent since the June quarter in 2023.
Marquardt said on a seasonally adjusted basis, annual public sector wage growth was higher than private sector growth for the first time since the December quarter in 2020.
The Australian wage growth figures came in slightly below economists' forecasts, with economists expecting wages to grow 0.9 per cent over the September quarter.
AMP economist My Bui said the latest ABS data indicates that wage growth has clearly slowed from its peak, driven by less tight labour market conditions as well as a smaller increase in Award & Minimum Wages this year.
"The 0.8 per cent quarterly pace has been unchanged since the beginning of the year and will likely translate to further declines in annual terms going forward," Bui said.
"Overall, wages growth rate in Australia is on track to be lower than the RBA forecasts of 3.4 per cent by the end of this year."
Bui said AMP is now predicting 3.2 per cent annual growth for the fourth quarter of this year.
While wage growth is softening, real wage growth, which takes out the impact of inflation, is now positive, she said.
"We expect this positive gap to continue as Australia’s labour market remains resilient while inflation will climb down further," she said.
However, Bui warned that the ABS data also points to weaker wage dynamics from this point.
"The proportion of jobs with large wage rise has finally declined, with only 31 per cent of jobs seeing a rise above 4 per cent," she said.
Wages growth is also slowing across many industries, including those with very strong growth throughout the last year such as healthcare or utilities.
"Private sector wage growth, while still strong at 0.8 per cent quarter on quarter, has now declined to 3.5 per cent in annual terms which is the slowest rate in 2 years," Bui said.
"Public sector wage growth has also resumed its downward path, increasing 0.8 per cent quarter on quarter or 3.7 per cent year on year. Overall, only roughly a tenth of industries are now seeing large (greater than 4 per cent year on year) wage rises."
Bui said lower inflation pressures, weakening labour market indicators and softer wage growth "opens the door to a curt from the RBA early next year".
"While Australia’s labour market is still strong, many cracks have appeared including a lower level of job vacancies, smaller job openings to unemployment ratio, as well as weakening hiring intentions survey readings – all of which will eventuate in softer wages," she said.
AMP forecasted the first rate cut to come as soon as February with the full impact of past rate hikes still feeding through, recession risks still significant and wage growth slowing.
AMP chief economist Shane Oliver said the RBA would want to see the December quarter inflation data, which won't come out until late January, before making any cuts.
"That said we are heading in the right direction. A December rate cut is still possible, but it would require October monthly inflation data due late this month to show a further drop in trimmed mean inflation to less than 3 per cent year on year and for unemployment to have another leg up."
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