EMPLOYEE WAGES. CPI V WPI - WHAT DO THEY MEAN & WHY IS IT IMPORTANT
IF YOU ARE IN THE MIDST OF NEGOTIATING EMPLOYEE WAGES/SALARY, AND YOU ARE BEING BLINDSIDED BY ALL THE JARGON LIKE AWARD RATES, NATIONAL MINIMUM WAGE (NMW), COI AND WPI, GRAB A COFFEE AND READ ON...
What do they all mean?
- CPI = Consumer Price Index
This is the national index that tracks the change in retail prices of 11 categories of goods and services commonly purchased by households (i.e., food, bread, alcohol, clothing, health, transport, etc). It is released by Australian Bureau of Statistics (ABS) each quarter.
There are many ways to cut up this data but most people just look at the “All Groups CPI”. However, if you want to see the CPI movement by group, sub-group or capital city, hop onto the ABS website here: http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6401.0?opendocument&ref=HPKI
- Why is CPI important?
It is the go-to indicator of whether people are paying more for the same goods each quarter. If it goes up significantly, you could expect your employees to use this as an argument for higher wages as everyday living expenses are simply costing more, although likely so are your costs of operating a business.
It also is an indicator that the Reserve Bank look closely at when setting interest rates, and the Fair Work Commission when looking at minimum wages.
Current CPI (March quarter) 1.9%
Previous quarter (Dec) 1.9%
- WPI = Wage Price Index
This is the national index that measures how wages / salaries change, using a sample group of jobs to measure this change. It is the same as CPI, but looks at wages / salaries only (i.e., you don’t have to worry about how much bananas cost this month!). It is released by the ABS each quarter.
The key point here when looking at your employees’ wages, is to compare apples-with-apples. The ABS breaks down the data well beyond just a “national average”, and looks at each State, whether you are in private or public sector, does it include just ordinary time or all hours, etc. It is important to make sure you are looking at the right data. Have a look here:http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6345.0Mar%202018?OpenDocument
- Why is WPI important?
In negotiations, particularly enterprise bargaining, it is the preferred indicator for employees looking for a wage / salary increase, although it is common for employees to pick and choose between CPI and WPI depending upon which one gives a better picture for an increase!
Again, the Reserve Bank look carefully at this indicator when managing the economy and setting interest rates.
Be very careful when looking at national data here. State-based data should be more relevant for you, as should whether you are public or private, and whether it includes bonuses / commissions and all hourly rates, or just ordinary hours.
Most enterprise agreements that refer to this index should, if they are sound, refer to the State-based version of WPI specifically as applying to any wage increases.
Current WPI (March quarter) 2.1%
Previous quarter (Dec) 2.1%
- NMW = National Minimum Wage
This is the national minimum base rate (ordinary hours) that the Federal Government sets once a year for 1st July after a review by the Fair Work Commission, looking closely at all the economy indicators, submissions by interested employer and employee representatives, and discussions with various industries.
- Why is the NMW important?
It is the baseline to which you must pay employees. It allows for different rate calculations for employees under 21 years of age, and those part of a disability Supported Wage System.
This year, it also introduced a minimum standard for apprentices and juniors (under 21 yrs of age) that are not covered under an Award.
The percentage the NMW increases each year, is also the exact same percentage that ALL Award rates increase each year – i.e., if the NMW goes up by 2.5%, then Award rates will go up by 2.5% also.
Current NMW (1st July) 3.5%
Previous year (1st July) 3.3%
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