Sydney
Economists had expected a slight decline in the wage growth in June which would have reduced inflationary pressures. Pixabay

Australia's public sector pay package has increased 3.9% in the last 12 months, which is the second-fastest pace in nearly 14 years, Australian Bureau of Statistics (ABS) data revealed Tuesday.

In the June quarter, the pay for public servants was raised by 0.9% and in March by 0.6%, contributing to a 3.9% increase in the past one year. The hike was the highest since 2010, excluding the annual advance of 4.2% given last December, The Guardian reported.

Based on the overall data, the wage price index (WPI) grew by 4.1% on an annual basis for the June quarter and by 0.8% for that quarter alone.

The ABS's head of prices statistics, Michelle Marquardt, attributed the strong June quarterly hike to the "newly synchronised timing pattern of Commonwealth public sector agreement increases." Earlier, the wage hike was at a different quarter as settled by each agency, reported ABC News.

"All the public servants received a pay hike from March 2024. This led to a larger increase in the contribution Commonwealth jobs made to public sector wage growth," Marquardt said. "Pay rises for these jobs had previously been paid at different times across quarters depending on the timing of individual agency agreements."

While the private sector wages rose by just 0.7% in the June quarter, which is equal-lowest for any quarter since the end of 2021.

"The RBA [Reserve Bank of Australia] will be somewhat relieved to see wage pressures subsiding," Sean Langcake, the head of macroeconomic forecasting for Oxford Economics Australia, said. "However, absent an improvement in productivity growth, the current pace of wage growth is still a little too strong for inflation to return to target quickly."

Following the Fair Work Commission's Annual Wage Review, a 3.75% increase in minimum wages will be visible in this quarter's WPI data. NAB's monthly business survey reported that labor cost growth for July rose to 2.5% on a quarterly basis, up by 1.5% in June.

Highlighting NAB's report on the steady growth of jobs in the economy, bank's chief economist Alan Oster said, "The broader message is that economy-wide inflationary pressures are gradually abating."

Economists had expected a slight decline in the wage growth in June, which would have reduced inflationary pressures. But, the decrease in wage growth in the private sector in contrast to the hike in the public sector kept the nationwide wage growth steady.

However, Commonwealth Bank economist Stephen Wu pointed to a sharp decline in the annual pace of wage growth. He said it's easiest to track wage growth by each quarter. After the peak growth of 1.3% in September 2023, the growth rates have slowed down to 1%, then 0.9%, and now to 0.8% per quarter, Wu explained.

"There has been a clear and sustained downward trend," he stated.