Australian Wage Growth Slows Amidst Low Unemployment, Easing Inflation Concerns

Sydney, Australia - Australian wages exhibited the slowest annual growth in over two years during the fourth quarter, despite unemployment remaining near record lows. This suggests that the robust labor market is not a barrier to further inflation declines.

According to the Australian Bureau of Statistics (ABS), the wage price index rose by 0.7% in the December quarter, marking the lowest increase since Q1 2022. This fell short of market expectations of 0.8%.

Annual wage growth decelerated to 3.2% from 3.6%, the lowest level since Q3 2022. The private sector witnessed growth of 3.3% in the quarter, while public sector wage growth slowed significantly to 2.8%.

"Wage pressures are moderating, contributing to a more favorable inflation outlook and partly justifying yesterday's rate cut," said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia. "We anticipate further labor market easing in 2025, which will dampen wage growth further."

The ABS attributed the decline in public sector contributions to the timing of labor agreements shifting outside the December quarter and expirations or smaller increases in others.

Australia's unemployment rate has remained close to 4.0% for a year, while inflation has eased from a peak of 7.8% in late 2022 to 2.4% in Q4 2024. Annual wage growth has witnessed a decline of one percentage point over the past year.

The Reserve Bank of Australia believes the labor market remains tight in relation to full employment but no longer expects significant further loosening. As a result, underlying inflation is now projected to settle above the mid-point of its target range of 2-3% in the coming years.

The central bank anticipates wage growth to reach 3.4% by year-end, with the public sector accounting for a quarter of a percentage point growth due to announced pay rises. However, it acknowledged that the decline in job-switching could reduce upward wage pressure in its Statement of Monetary Policy on Tuesday.

Swaps imply a low probability of a follow-up rate cut in April, with the next reduction expected in May or July.