Australia’s wage growth was stronger than expected in the first three months of the year, highlighting the nation’s tight labor market that has been underpinned by a wave of public-sector hiring.

The Wage Price Index advanced an annual 3.4% in the first quarter, exceeding economists’ estimate and the prior reading of 3.2%, Australian Bureau of Statistics data showed Wednesday. On a quarterly basis, wages grew 0.9%, higher than the 0.8% forecast.

“Annual wage growth ticked up for the first time since the June quarter 2024,” said Michelle Marquardt, ABS head of prices statistics. The report showed public sector wage growth was higher than the private sector.

The Reserve Bank is closely monitoring the price-setting behavior of firms and the labor market, with employment data on Thursday expected to show the jobless rate held at 4.1% in April.

These data will feed into the RBA’s quarterly update of its economic forecasts that will be released alongside its interest-rate decision on Tuesday. The central bank’s outlook in February predicted unemployment would peak at 4.2% this year while wages growth would hit 3.4% — the figure shown today — before easing back to 3.2%.

Economists and money markets anticipate the RBA will cut by a quarter-percentage point on May 20 to take the cash rate to a two-year low of 3.85%.

RBA officials have said in the past that wage growth of around 4% is consistent with the central bank meeting its 2-3% inflation target, as long as the economy’s productivity performance improves. Yet they’ve sounded increasingly pessimistic about that in recent times as there has been little sign of a return to solid productivity gains.

RBA Governor Michele Bullock has said that the board needs to see an improvement in productivity in order to be comfortable that wages can rise without rekindling inflationary pressures.

Wednesday’s data showed private sector annual wage growth was unchanged at 3.3%, while the public sector accelerated to 3.6% from 2.9% three months earlier.

“Wages growth in the public sector was impacted by new state-based enterprise agreements, and to a lesser degree, increases paid to aged care workers,” Marquardt said. “Jobs covered by enterprise agreements contributed to over half of all quarterly growth, for the first time since September 2020.”