Wages are expected to grow by 2.7 per cent over the next year, down from 3.8 per cent in the 12 months to July 2025, the Australian HR Institute's latest quarterly survey has found.
Australian employees are experiencing their strongest wages growth in 15 years but many workers could see their pay increases fall back below inflation, said the institute's chief executive Sarah McCann-Bartlett.
"This could represent an engagement challenge for HR practitioners and line managers," she said.
A reduction in the central bank's outlook for wages growth will ease fears of an inflation increase. (Bianca De Marchi/AAP PHOTOS)
Annual inflation is currently at 2.8 per cent, according to the Australian Bureau of Statistics, although this is also expected to drop over the next 12 months.
If the expectations of the 600-plus senior HR professionals and decision makers surveyed are borne out, it would represent a substantial reduction on the Reserve Bank of Australia's predictions for wages growth.
The central bank, in its quarterly statement on monetary policy released last week, forecast wages to grow by 3.2 per cent in the 12 months to December 2025.
If wages undershoot the RBA's outlook, that could encourage the board to cut interest rates earlier, given their fears high wages and low productivity growth could spur an uptick in inflation.
"This may help ease concerns around the gap between low productivity and relatively strong wage growth, which has been of concern to both employers and policymakers," Ms McCann-Bartlett said.
Even though wage growth may be coming down, the survey showed demand for workers was still strong.
Demand for workers is expected to remain strong despite a predicted drop in wages growth. (Angela Brkic/AAP PHOTOS)
Almost one in two organisations plan to increase staffing levels, while just three per cent anticipated they would reduce the size of their workforce.
The turnover rate edged up slightly to 16 per cent, indicating ongoing challenges retaining workers despite softening in the labour market.
The unemployment rate has edged higher in recent months to 4.1 per cent, which is still relatively low compared to historical levels and when considering elevated interest rates.
Commsec chief economist Ryan Felsman predicts Wednesday's wage price index to show wage growth fell to 3.6 per cent in September from 4.1 per cent the previous quarter, due largely to a bumper 5.75 per cent increase in award wages falling out of the dataset.
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