Small business wages grew less than 3% in the year to January, Xero says, as inflation soars

Wages paid by small businesses grew 2.9% in the year to January, marking the fourth consecutive month of slowing growth, according to Xero’s new Small Business Insights report.

Citing data collated from hundreds of thousands of small businesses across Australia and New Zealand, the cloud-based accounting firm suggested wage pressures across the sector may be easing off.

Those findings come in spite of lingering skills shortages in high-demand areas, which have pushed up some hourly wages.

“Given Australia’s current low unemployment rate, there has understandably been a lot of concern around how this will impact wages growth and, in turn, inflation,” said Louise Southall, economist at Xero.

“However, our data suggests that the wage increases being paid by small businesses are not as large as they were as recently as September last year.”

This could be a reprieve for businesses paying above-the-odds for talent during worker shortages, but could manifest in workers having less money to funnel back into small businesses in the medium-term, she added.

Reflecting continual tightness in the sector, Xero said hospitality firms passed on the highest year-on-year wage growth at 4.4%.

Health care providers recorded the lowest uptick at 2.2%, with rental, hiring, and real estate firms offering increases of 2.4% year-on-year.

Xero’s overall small business wage growth figures suggest workers in small businesses are still falling behind in real terms, as the Consumer Price Index, the go-to barometer for the cost of living, rose 7.8% in the year to December.

Small businesses also appear to be passing on smaller wage rises compared to other employers across the economy.

On Wednesday, the Australian Bureau of Statistics revealed the seasonally-adjusted Wage Price Index rose 3.3% over the year to December, largely driven by growth in public sector wages.

Echoing the Xero data, the ABS said the sector with the highest quarter-on-quarter wage growth was the accommodation and food services industry, with an uptick of 1.7%, and a year-on-year growth of 3.5%.

While Southall suggested ties between wage growth and inflation, Treasurer Jim Chalmers said the ABS data was not indicative of a wage-price spiral.

“Wages growth isn’t the problem when it comes to inflation, it’s part of the solution to cost-of-living pressures,” he said.

“We don’t have an inflation challenge in our economy because wages are too high, but because of a war in Ukraine, pressure on global supply chains, and other challenges in our own economy ignored for too long.”