The Wage Price Index data for the Sept 2016 quarter shows that wage growth in Australia has yet again slowed to its lowest level since the data was first collected.
The annual nominal growth in total hourly rates of pay excluding bonuses (seas adj) for the year to Sept 2016 was +1.88%. Growth in the latest quarter was +0.4%. This includes both public and private sector hourly rates of pay. The public sector wage price index is growing at a faster rate than that of the private sector, but is clearly also slowing:-
In real terms, the change in the Wage Price Index is much lower and is barely positive. Annual growth is +0.14% and the latest quarter growth is +0.05%:-
Source: ABS (deflated using trimmed mean CPI)
Since late 2012, the wage price index in real terms, has been flat – growth in hourly rates of pay have (barely) kept pace with growth in core CPI.
This most likely means that disposable income has not kept pace with CPI growth. For disposable income to remain constant in real terms, wages growth must actually exceed CPI in order to account for the impact of taxation. The chart above clearly shows that real total hourly rates of pay have been flat since the end of 2012.
The slight uptick that is obvious from June 2015 is the result of core CPI falling, rather than wage growth picking up.
Implications for growth
Putting this into context of where spending growth will come from (debt and/or income), highlights that we might expect private sector demand growth to come under pressure in the near term.
Wage growth is just barely ahead of core CPI and most likely, disposable income has been falling (slightly) over the last few years. There has been “relief” for those managing a mortgage because variable rates have gone down. But on the flip side, low rates have hurt those relying on interest income. Globally, interest rates have started rising and, if this continues, this will place greater pressure on spending by indebted households where disposable income/wage growth has not kept pace with inflation.
The other important source of spending growth, credit creation, has recently started showing clear signs of deceleration. This is an early warning sign that private sector growth in Australia may slow further. Read more about the credit impulse in Australia – Sept 2016.
Growth may be increasingly reliant on increases in government spending. At the same time, government borrowing rates have already started rising. The other issue for the government is the ongoing slow-down of wages growth and what it means for the budget. The 2016/17 budget assumptions had the wage price index growth accelerating to 2.5%. We end the first quarter of the financial year well below that assumption.