Australian wages rise ahead of RBA rate announcement next Tuesday

Growth in Aussie wages picked up ahead of economists’ expectations, but an expert warns that if productivity doesn’t also grow it could create a real issue for the Reserve Bank of Australia.

Fresh figures from the Australian Bureau of Statistics on Wednesday showed wages rose by 0.9 per cent in the March quarter, above expectations of wages growing by 0.8 per cent.

The wage price index is now up 3.4 per cent for the year, up from 3.2 per cent in the 12 months until December 2024.

In real terms, wages are now up 1 per cent compared with headline inflation, which came in at 2.4 per cent over the same period.

KPMG chief economist Brendan Rynne said real wages were now ahead of inflation, which while good news for households, will need to be backed up by a boost in productivity.

“If productivity growth does not pick up the inevitable question will be whether the strong wages growth will flow through to inflation,” he said.

“This upside risk, combined with the risks related to trade policies around the globe, will test the RBA at its next meeting.”

Pressure on improving productivity

The economist said despite the uptick in wages, he does not expect Wednesday’s result to affect the RBA monetary policy board meeting next Monday and Tuesday, but he does predict attention will move to productivity.

Treasurer Jim Chalmers has already tagged boosting productivity will be the priority of his second term.

RBA governor Michele Bullock has previously cautioned wages could not be sustained without a productivity bump.

“If productivity didn’t pick up, then that means that the rate of nominal wages growth that can be sustained and be in line with the inflation target is lower,” Ms Bullock said.

Australia’s current productivity growth is at minus 1.2 per cent.

While workers often mistakenly assume productivity is linked to working harder or longer hours, it is actually about increasing output.

In a recent speech, the RBA head of economic analyst department Michael Plumb said

productivity is about how much output we get relative to what we put in.

“At an individual level, I increase my own productivity by making a shopping list before I buy groceries, so I don’t forget anything and avoid multiple trips to the supermarket,” he said.

“At the firm level, productivity might be improved by implementing customer relationship management software to streamline communication with clients and automate routine tasks.

“At the economy-wide level – which is what matters for the central bank and our dual mandate of full employment and low and stable inflation – productivity reflects a multitude of decisions like these.”

Why today’s wage data may worry RBA

In a post to X (formerly Twitter), IMF Economics said a reacceleration of growth to 3.4 per cent year-on-year without productivity “could be a concern” for the bank.

Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said wage growth was stronger than expected.

“Wage growth was driven by updated enterprise bargaining agreements in Q1,” he said. “Adjustments to aged care and early childhood education workers’ wages boosted private sector outcomes.

“In the public sector, new state-based agreements drove growth. Due to these adjustments, a much larger share of public sector jobs received a wage change than is typically the case in Q1.”

Taking out the jump in public sector wages, Mr Langcake said wage growth was more modest in other parts of the economy.

“The labour market is still in a tight position, but there are still signs in these data that wage growth is relatively well contained,” he said.

“Despite the upside surprise, we still expect to see a 25 basis point rate cut in May.”

Albanese government welcomes latest figures

Mr Chalmers and new Employment Minister Amanda Rishworth welcomed the data, saying annual real wages had grown for 18 months in a row “under the Albanese Labor government”.

“Under Labor, more Australians are working, earning more and keeping more of what they earn,” they said in a statement.

“We’re really pleased with today’s figures which show annual real wages have now grown for six quarters in a row, after going badly backwards under the previous Liberal government and falling for the five quarters in the lead up to the 2022 election.

The pair said wage growth was “one of the ways” the government was preparing Australia for “more uncertainty and instability in the global economy”.

“We know that productivity growth is the key for strong and sustainable wages growth in the long term and that’s why our five-pillar productivity agenda across technology, human capital, energy, care and competition is so important,” they said.

Later at a press conference in Logan, Mr Chalmers said wages were improving and inflation was decreasing with “no evidence” of a wage-price spiral.

“There’s absolutely no whiff of a wage price spiral in our economy and that’s because we’ve been getting these decent wages outcomes at the same time as we’ve been getting very encouraging outcomes on lower inflation at the same time,” Mr Chalmers said.

“And not just headline inflation but underlying inflation, trimmed mean inflation is now in the Reserve Bank’s target band as well.”

ABS head of prices statistics Michelle Marquardt said annual wage growth ticked up for the first time since the June 2024 quarter.

“The 3.4 per cent increase in wages for the year to the March quarter 2025 was higher than the 3.2 per cent to the December quarter 2024 but lower than the 4.0 per cent at the same time last year,” she said.

While accelerating wages could have a negative impact on Australians looking for a rate cut, the RBA forecast a pick up in wages, albeit Wednesday’s announcement was ahead of schedule.

In its February statement on monetary policy, the RBA predicted wage growth to accelerate to 3.4 per cent over the year to June.

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