The Australian Bureau of Statistics (ABS) has released its latest Wage Price Index (WPI), reporting seasonally adjusted growth of 1 per cent over the third quarter of 2022 (Q3), up from 0.8 per cent in the previous quarter.
The WPI rose 3.1 per cent in the 12 months to Q3, up from 2.6 per cent as at 30 June.
The Q3 result exceeded market forecasts of a 0.9 per cent increase over the quarter, and a 3 per cent rise over the 12 months to 30 September.
According to ANZ Research, the Q3 WPI result reflected the “larger increase to minimum and award wages”, which had “flow-on effects” to some enterprise bargaining agreements (EBAs) and individual agreements.
The stronger than expected WPI result, however, could quash expectations of a pause in the Reserve Bank of Australia’s (RBA) monetary policy tightening strategy, aimed at curbing high levels of inflation.
“While we don’t think this figure will alarm the RBA, it is a large step-up from the (upwardly revised) 0.8 per cent q/q reading last quarter,” ANZ Research observed.
“It’s therefore unlikely the RBA will pause in December; so, absent an exceptionally weak October employment report tomorrow (17 November), we continue to think they’ll raise the cash rate by 25 bps [basis points].”
Robert Carnell, regional head of research at ING Economics, said he is also anticipating 25 bp hikes, noting that while “surprising”, the WPI result would not prompt an acceleration in the pace of tightening.
“The RBA expressed concern in their latest statement about overdoing the tightening, and for this reason alone, they seem to be content to slow the pace of monetary adjustment right down to help them finesse the end game in this tightening cycle,” Mr Carnell said.
“Consequently, even with the last inflation and [now's] wages data surprising on the upside, we don't believe they will shift back to their previous 50 bp pace of tightening and will continue at a 25 bp pace at coming meetings, with the peak for cash rates likely to come in 1Q23 as the cash rate hits 3.6 per cent.”
The RBA, he added, would be “keeping a weather eye” on the Australian dollar, with recent weakness “abruptly shattered” amid speculation of a monetary policy “pivot” from the US Federal Reserve.
“…The Reserve Bank will be keen not to encourage the AUD to rise much faster due to their actions,” he concluded.
