SYDNEY- Australian wages rose at the slowest annual pace in more than two years in the fourth quarter even as unemployment stayed near historic lows, suggesting the strong labor market was not a bar to further declines in inflation.
The result will likely reassure policymakers that the labor market is not generating much price pressure. The surprisingly strong jobs market is a reason the central bank cautioned against further monetary policy easing, having cut rates for the first time in more than four years on Tuesday.
Figures from the Australian Bureau of Statistics (ABS) on Wednesday showed its wage price index rose 0.7 percent in the December quarter, the lowest increase since the first quarter of 2022. That compared with market forecasts of 0.8 percent.
Annual pay growth slowed to 3.2 percent, from 3.6 percent, the lowest reading since the third quarter of 2022. Growth in the private sector ran at 3.3 percent in the quarter, with public wages growth slowing sharply to only 2.8 percent.
“Wage pressures are easing, which makes for a softer inflation outlook and goes some way toward justifying yesterday’s rate cut,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“We still expect to see the labor market slacken over 2025, which will take some more heat out of wage growth,” he said.
ABS noted the drop in contribution from the public sector was driven by the timing of some labor agreements shifting to outside of the December quarter, while others expired or had smaller increases.
Australia’s jobless rate has hovered near 4.0 percent for a year, yet inflation has subsided from a peak of 7.8 percent in late 2022 to 2.4 percent in the fourth quarter of 2024. Annual wage growth has declined by one full percentage point over the past year.
The Reserve Bank of Australia has said it believes the labor market remains tight relative to full employment, but it no longer expects it to loosen much further. That is why underlying inflation is now projected to settle above the mid-point of its target band of 2-3 percent over the coming years.
