Wage Growth Highlights Balancing Act For Businesses

Australian wages grew by 3.4% in the year to March 2025, according to the latest Wage Price Index (WPI) from the ABS. This marks a slight uptick from the 3.2% annual growth recorded in the December 2024 quarter, though it remains below the 4.0% rate seen a year earlier. Quarterly growth stood at 0.9%. Notably, this is the first acceleration in annual wage growth since mid-2024, signalling some renewed momentum in the labour market.

From a monetary policy perspective, the current pace of wage growth remains above the long-run average of 2.4% but has clearly moderated from last year’s peaks. This easing trend aligns with the Reserve Bank of Australia’s (RBA) forecasts, which anticipate wage growth to settle around 3.4% in 2025 and ease further to 3.1% by 2026. The RBA may view the renewed pick-up in wage growth with some caution, especially given ongoing concerns around productivity. However, we maintain our expectation of a 25bps rate cut at its 19–20 May meeting, as the Board considers the full spectrum of economic data leading up to the meeting.

The public sector led the way, with annual wage growth of 3.6%-up from 2.9% in the previous quarter-while the private sector saw a steady 3.3% increase. In the March quarter alone, public sector wages rose by 1.0%, outpacing the private sector’s 0.9% rise. The surge in public sector wages was largely driven by new state-based enterprise agreements, while private sector growth was influenced by administrative adjustments in aged care and early childhood education, as well as regular salary reviews.

For businesses, this moderate but broad-based wage growth presents a mixed picture. It highlights the balancing act many SMEs are facing, particularly in terms of labour input costs, even as broader inflation comes back towards the Reserve Bank of Australia’s target range. On one hand, rising wages can support consumer spending and boost demand. On the other, higher labour costs may squeeze margins, particularly for sectors already facing cost pressures. Industries such as accommodation and food, mining, construction, and manufacturing are experiencing above-average wage growth, while professional services, healthcare, finance, and arts and recreation are lagging behind.

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