Strong March wage growth poses a mixed picture for businesses and economy
Strong wage growth in March has posed both challenges and benefits for businesses and the broader economy, economists have said.
The Wage Price Index rose by 3.4 per cent in the year to March 2025, marking the first pickup in annual wage growth since mid-2024, data from the Australian Bureau of Statistics has shown.
RSM economist Devika Shivadekar said that the March wage boost posed a mixed picture for businesses.
“On one hand, rising wages can support consumer spending and boost demand, but on the other, higher labour costs may squeeze margins, particularly for those sectors already facing cost pressures,” she said.
“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 (RBA) target range.”
Wage growth outpaced inflation in the 12 months to March, indicating that consumers have started to claw back spending power amid a persistent cost-of-living crisis. Core inflation rose by 2.9 per cent in the year to March while wages rose by 3.4 per cent, ABS data showed.
However, the Reserve Bank cautioned that wage growth without productivity growth could spark inflation as businesses struggled to absorb the rising costs of labour. Australia’s productivity performance has stagnated over the past decade, stifled by poor competition within the economy and a lack of innovation.
“Productivity growth enables firms to increase wages for workers,” the central bank said in March.
“Unit labour costs … decrease as labour productivity increases, meaning that firms can offset the effect of wage increases on profits with productivity improvements.”
When firms experience wage growth without productivity growth, they pay a higher cost for the same labour outputs. They could respond to this by absorbing the additional costs into their profit margins, or by raising prices, contributing to inflation.
Wage growth in the March quarter was largely driven by new public enterprise agreements, the ABS said. Further wage growth is expected throughout 2025 after the Fair Work Commission awarded higher pay to female-dominated sectors in a bid to offset historical gender-based devaluation of work.
“Jobs covered by enterprise agreements contributed to over half of all quarterly growth, for the first time since September 2020,” Michelle Marquardt, ABS head of prices statistics, said.
The strong wage growth in March has given a welcome reprieve to workers looking to regain spending power eroded by years of inflation.
“Today’s wage data is the clearest sign yet that working people are getting ahead after a decade of wage suppression and global inflation,” Australian Council of Trade Unions president, Michele O’Neil, said on Wednesday.
However, the RBA has warned that long-term wage growth would need to be underpinned by a pickup in Australia’s languishing productivity performance.
“It is very hard for an economy to support real wages growth in the longer run without productivity growth,” RBA head of economic analysis Michael Plumb said in a February speech.
