People cross a bridge near the Sydney Tower Eye in the Central Business District (CBD), Sydney, Australia, July 9, 2025. REUTERS/Hollie Adams

By Stella Qiu

SYDNEY (Reuters) -Australian wages grew at a steady pace in the third quarter, driven by public sector pay gains, adding to a string of upbeat data that reinforces expectations the Reserve Bank of Australia will keep interest rates unchanged.

The wage price index rose 0.8% in the third quarter, unchanged from the previous quarter, Australian Bureau of Statistics figures showed on Wednesday, which was in line with forecasts.

Annual pay growth held at 3.4%, driven by a pick-up in public wage growth to 3.8%, the highest since the second quarter last year. Growth in the private sector, on the other hand, slowed to 3.2%, the lowest in over three years.

"As we already know the labour market remained tight in Q3, so it's no surprise that wage growth remains solid," said Ben Udy, lead economist for Oxford Economics Australia.

"High inflation, subdued productivity growth and the tight labour market are set to keep the RBA on the sidelines for the next few months."

The RBA has cut interest rates three times this year but a surprisingly high third-quarter inflation report dashed hopes for more policy easing. Recent data from surging consumer confidence to a jump in home loans suggested financial conditions might not be that restrictive.

Wage growth has moderated from a peak of 4.3% in late 2023, allaying concerns of a damaging wage-driven inflation spiral. However, it appears to have maintained at healthy levels, with the RBA anticipating wage growth to steady at 3.4% this year.

The central bank noted some price indicators - such as growth in average earnings and unit labour costs - are signalling higher inflation than the wages data. Indeed, the labour market remained tight, with employment surging in October and the jobless rate falling back to 4.3% from 4.5%.

With inflation not projected to fall back to the 2-3% target band until mid-2026, markets are pricing in just a little over 50% probability that the RBA can deliver one last cut in May next year.

The statistics bureau noted that state government pay rises contributed to 82% of the public sector wage growth, which has been outstripping gains in the private sector for a third consecutive quarter.

(Reporting by Stella Qiu; Editing by Himani Sarkar and Sonali Paul)