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RBA urged to hold tight on rate hikes, as data reveals flattening wage growth

The latest Employment Hero SME Index, which uses an accumulative dataset of over 150,000 small and medium-sized businesses (SMEs) and 1.5 million employees, reveals Australia’s wage growth is beginning to flatten to align with inflation, prompting CEO Ben Thompson to call for a near term halt in further interest rate increases by the Reserve Bank of Australia (RBA).

Wage growth aligns with inflation

The SME Index for October revealed that the monthly median hourly rate marginally increased by 0.5 per cent, a modest change compared to earlier months in the latest quarter, which saw a 2.8 per cent rise. Average employee growth also saw a marginal increase of 0.1 per cent month-on-month (MoM), with a quarterly change of 0.8 per cent.  

This real-time development in wage growth paired with an ongoing decrease in employee growth rates marks a potential turning point in the nation’s economic trajectory. Ben Thompson, Co-founder and CEO of Employment Hero, asserts that as wage growth becomes more in line with inflation, Australian workers should be spared from further cash rate increases.

Mr. Thompson said: “The RBA’s recent fears of a wage-price spiral were previously indicated in our June Index, something we could identify due to the real-time granularity of our data. However, our latest October data now reflects the critical alignment of wage growth with inflation. We’re almost certain that Aussies will be spared further cash rate rises for the remainder of this year. In fact, we would strongly encourage the RBA to hold tight on further interest rate increases. 

“As we expect this plateauing wage trend to continue in 2024, Australian businesses and workers should receive a breather over the holiday season if the Reserve Bank pays attention to the data and pauses rate rises in at least the short term,” Mr. Thompson added.  

While the SME Index for October shows a flattening in wage growth, it also highlights a surge in healthcare hiring ahead of a predicted rise in COVID outbreaks over the holiday season and the notable return of older workers to the workforce.

Healthcare sector ramps up hiring ahead of COVID season

According to the SME Index, Healthcare and Community Services showed the most significant increase in hiring across all industries. The sector observed a 1.2 per cent quarterly increase in average employee growth and an 8.8 per cent increase year-on-year (YoY). 

This outpaced other key industries, including Construction and Trade Services; Manufacturing, Transport and Logistics; Retail, Hospitality and, Tourism, and; Science, Information and Communication Technology, which all recorded below one per cent in quarterly increases. 

This trend aligns with expectations of a seasonal COVID outbreak, with recent NSW Health data detecting COVID cases in NSW soaring more than 20 per cent in the past fortnight amid a national spike in vaccination rates, leading experts to believe there’s concern over a “Covid Christmas.” 

Healthcare and Community Services additionally saw the greatest increase in the median hourly rate of all industries, rising 1.3 per cent MoM, 3.8 per cent quarterly, and eight per cent YoY. The data indicates the Healthcare sector continues to bear the brunt of talent shortages, causing wages to grow faster than other industries. 

Older workers re-enter the workforce

A surprising trend in the latest SME Index is the significant return of older workers to the workforce over the past year. The 65+-year-old age group experienced an 8.6 per cent increase in the median hourly wage rate compared to October 2022. 

This increase surpasses that of other age groups, including Under-18-year-olds at eight per cent, 18-24-year-olds at 6.5 per cent, and 25-65-year-olds at 7.3 per cent. The data suggests that cost of living pressures may be a driving factor for this demographic’s return to work, particularly now in the lead-up to Christmas. 

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