Is wage inflation being underestimated

In recent times, the cost of living in Australia has grown faster than salaries, meaning ‘real’ wages have gone backwards. We believe this is about to reverse as the lagging effect of Australia’s employment regime abates. This should fuel material wage inflation over the next 6-12 months despite signs that the labour market may be softening. As a result, we expect to see Australian small cap companies increasingly divide between those that can cope with rising wages using pricing power, cost cutting and/or productivity initiatives – and those that can’t.

Is wage inflation being underestimated by the market?

A consistent theme coming through for most sectors across the Australian small cap universe is wage inflation. We believe wage inflation is trending higher, however this is yet to materially show up in official government statistics, which currently show wage growth tracking below the Consumer Price Index (CPI).

Australian wage and consumer price inflation (% p.a.)

Phillip Hudak
Co-Portfolio Manager, Australian Small Companies

Co-Portfolio Manager, Australian Small Companies

Phillip Hudak

BBus, CFA
Phillip Hudak joined Maple-Brown Abbott in April 2022 as Co-Portfolio Manager for Australian Small Companies, bringing over 20 years’ investment experience, with 15 years dedicated to Australian small cap equity portfolio management and fundamental stock research. In his current role, Phillip is responsible for leading the Australian small companies equity business, focusing on medium-term earnings delivery combined with a differentiated market-leading sustainability framework which is designed to outperform in most market environments.

Before joining Maple-Brown Abbott, Phillip worked as Co-Portfolio Manager on the AMP Capital Australian Emerging Companies strategy for nine years. Prior to that, he was a small companies analyst at ING Investment Management, analyst at MIR Investment Management and an investment consultant with Russell Investment Group.

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