Public sector wages grew 3 per cent in a year, the fastest in 10 years

The closely watched wage price index grew 0.8 per cent in the March quarter to be up 3.7 per cent from a year earlier - its biggest gain since late 2012.

The increase, which included an annual 3 per cent increase in public sector wages (itself the biggest such jump in a decade), reflects the growing bargaining power of workers as employers struggle to fill vacancies and retain staff.

The release of the Australian Bureau of Statistics figures follows the Australian Public Service Commission's offer of a 10.5 per cent pay rise for public servants over the next three years - roughly half the Community and Public Sector Union's wage claim.

But wages are growing across the board.

In 60 per cent of jobs, wage rises this year were greater than last year. And whereas more than half of salary increases were less than 2 per cent two years ago, less than a fifth are now this small. A quarter are between 4 and 6 per cent and one in 10 are more than 6 per cent.

Workers in the ACT enjoyed the largest pay increases in the country, rising an average 1.3 per cent in the first three months of the year to be up 3.7 per cent over 12 months. Among industries, those in education and training recorded the largest gains (1.5 per cent), followed by administration (1 per cent).

In a joint statement, Treasurer Jim Chalmer and Employment Minister Tony Burke welcomed the results, saying, "it's really pleasing to see that wages are moving. Getting wages growing again is central to our economic plan".

The release of the wage figures coincided with the start of the Fair Work Commission's Annual Wage Review. The union movement is pushing for a 7 per cent pay increase to the minimum wage while employers are arguing for a more modest rise amid evidence that real wages are going backwards.

Dr Chalmers and Mr Burke acknowledged that not all workers were getting pay increases and even those that did were not keeping up with the rise in living costs.

Inflation grew at 7 per cent in the March quarter so workers who secured an average 3.7 per cent wage rise would still have seen their purchasing power shrink.

The government forecasts households will not begin to make inroads into living costs until early next year when real wages resume growing. They are predicted to reach 0.75 per cent by the June quarter 2024.

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The Reserve Bank of Australia has indicated that wage growth of around 4 per cent is consistent with its inflation target, but has qualified that by warning a lift in productivity will be needed "to ensure consistency of the wages growth forecast with the Bank's inflation target".

Following the most recent interest rate hike, Reserve Bank governor Philip Lowe said the central bank was alert to the risk of a wage-price spiral developing the longer inflation remained elevated.

EY senior economist Paula Gadsby said that, given an unemployment rate of just 3.5 per cent, there is a risk of wages exceeding the RBA's forecasts, particularly among workers on the public payroll.

"Public sector wages are starting to catch up [to private sector wages]," Ms Gadsby said. "Both state and federal governments have been under pressure to ... increase wages for public sector workers whose growth rate has been falling behind."

But Westpac economist Justin Smirk said the overall pace of wage gains appeared to be easing rather than accelerating.

After growing by 1.1 per cent in the September quarter, the quarterly pace of wage gains has moderated since, particularly in the private sector, Mr Smirk said.

"We are seeing wage inflationary pressures shift away from the private sector and towards the public sector," the Westpac economist said.

Given that the private sector accounts for around 76 per cent of total wages, Mr Smirk said public sector pay growth would need to reach its record 4.8 per cent peak achieved in 2003 if overall wage growth was to top 4 per cent.

HSBC chief economist Paul Bloxham said the pace of wage growth had moderated and should be of little concern for the central bank.

Dr Chalmers, agreed, saying that, "when it comes to the cost-of-living pressures on working families, decent wage rises are part of the solution, not part of the problem".

"We don't have an inflation challenge in our economy because people are getting paid too much. What we need to do, and what we are doing in the budget, is dealing with these cost-of-living pressures without adding to inflation," he said.

But shadow treasurer Angus Taylor accused the government of making the inflation problem worse through the spending it announced in the budget.

"[The government] gives with one hand, while taking away with the other through higher prices and higher taxes," Mr Taylor told the National Press Club. "It means the Reserve Bank is slamming the brakes at the same time as the government has its foot on the accelerator. And when you do that - you wreck the engine."

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