Wage increases set to boost consumer spending

Start-ups will benefit from a significant leap in wages via increased consumer spending, according to a leading economist.

CommSec economist Savanth Sebastian says workers’ wages are growing faster than prices, which will have a direct impact on consumer spending.

The Labour Price Index reached 1.1% in the September quarter, and the private sector index jumped to 1.2%; the biggest increase in the 13-year history of the index.

“’It looks as if wage growth bottomed in December last year. Weakness in wage growth over the past year has been one of the reasons consumer spending has been depressed,” Sebastian says.

“The pickup in the latest wage is largely due to the fact there was a rise in the minimum wage, which came through on July 1. It affected about 1.5 million workers in Australia.”

The minimum wage jumped 4.8% in July after Fair Work Australia awarded the first increase in two years.

“The latest [index] results are probably a win-win situation as it will help to alleviate the stress on the household budget, especially given the rate hikes that have taken place and the increase in utility charges,” Sebastian says.

“Going forward, I expect that wage growth will play a significant part in helping to drive consumer activity.”

“Retail spending has been relatively depressed and effectively, over the next year, I’d expect wage gains and rising welfare levels to be the key drivers for an improvement in spending and activity in general.”

Wages are growing fastest in the electricity, gas, water and waste sector, up 4.4%, and in education, also up 4.4%.

The financial and insurance services sector is up 4.2%, professional services is up 4.1%, and mining is up 3.8%.

The slowest growing wages are in media and telecommunications, which is only up 2.3%, wholesale trade and real estate services.

Queensland and Western Australia have the fastest growing wages, up 3.9% and 3.8% respectively.

Victoria and New South Wales are up 3.5%, while South Australia and Tasmania are up 3.2%.