Wages are growing faster than inflation and this milestone has been reached earlier than expected.

The official wage price index rose 4.2 per cent in the 12 months to December, a little above forecasts and up from the 4.1 per cent annual growth in September.

On a quarterly basis, wages lifted 0.9 per cent in the three months to December, down from the record-breaking 1.3 per cent quarterly growth through to September.

The December result was the highest annual growth since March 2009, and came in slightly above the 4.1 per cent increase in headline inflation in the same window of time.

AMP deputy chief economist Diana Mousina said the return to real wage growth would help ease financial pressure on households.

“Although the cost of living pressures from high interest rates and the rising income tax burden or bracket creep are still an issue,” the economist said.

Treasurer Jim Chalmers said real wage growth was back “and ahead of schedule”.

Treasury forecasts had wages catching up to inflation early in 2024 rather than late 2023.

“These are very welcome and very encouraging numbers but we know people are still under pressure, which is why our cost of living tax cuts are so important,” Dr Chalmers said.

In the public sector, salaries lifted 1.3 per cent over the quarter – the highest quarterly rise in 15 years.

Private sector wages lifted a smaller 0.9 per cent, the same pace as in the quarter before.

ABS head of prices statistics Michelle Marquardt said for both the private and public sectors, pay improvements were driven by organisation-wide annual wage and salary reviews.

“Wage growth for December quarter 2023 saw a higher contribution from jobs covered by enterprise agreements than is typically recorded for a December quarter,” she said.

The bureau noted that almost half of the quarterly growth in the December quarter was driven by jobs covered by enterprise agreements.

About 40 per cent of the Australian workforce are covered by these agreements.

Ms Mousina said the wage data lined up with the Reserve bank’s own forecasts, which has pay growth about at its peak.

“While the average wage increases for those jobs that had a wage change in the December quarter was high, the labour market is likely to weaken from here which should see a slowing in wages growth as turnover in the labour market declines,” she said.

The economist said the numbers were consistent with the central bank staying on hold for now.

“We still see rate cuts starting around mid-year, by which time the RBA would have received another reading on wages which should indicate some easing in wage pressures across industries, in line with a further slowing in the labour market.”

Poppy Johnston
(Australian Associated Press)