The Wage Price Index (WPI) rose 1.3 per cent in September quarter 2023, and 4.0 per cent for the year, according to seasonally adjusted data released today by the Australian Bureau of Statistics (ABS). This is the highest quarterly growth in the 26-year history of the WPI.
The annual growth, at 4.0 per cent, is the highest for the WPI since March quarter 2009.
What does this mean for SMEs?
The rising WPI is likely to have a number of implications for SMEs, including:
- Increased labor costs: SMEs will need to factor in the higher cost of labor when pricing their goods and services. This could put upward pressure on prices and potentially make it more difficult to compete with larger businesses.
- Skill shortages: The tight labor market is likely to make it more difficult for SMEs to find and retain skilled workers. This could lead to productivity losses and slower growth for SMEs.
- Wage bill inflation: The rising WPI will put upward pressure on SMEs’ wage bills. This could make it more difficult for SMEs to invest in other areas of their businesses, such as research and development or marketing.
What can SMEs do to manage the rising WPI?
There are a number of things that SMEs can do to manage the rising WPI, including:
- Reviewing their pricing strategies: SMEs should regularly review their pricing strategies to ensure that they are covering their costs and making a profit. They may need to increase prices in order to offset the higher cost of labor.
- Investing in productivity improvements: SMEs can invest in productivity improvements to help offset the higher cost of labor. This could involve investing in new technology, training employees, or implementing new processes.
- Focusing on employee retention: SMEs should focus on retaining their existing employees by offering competitive wages and benefits. They may also need to be more flexible with working hours and other conditions in order to attract and retain talent.
The rising WPI is a challenge for all businesses, but SMEs are particularly vulnerable. SMEs should take steps to manage the rising WPI in order to protect their profits and ensure their long-term viability.
Here are some additional tips for SMEs:
- Be aware of the WPI: SMEs should keep an eye on the WPI so that they can be prepared for future increases.
- Plan for the future: SMEs should factor the rising WPI into their business plans.
- Talk to their bank: SMEs should talk to their bank about their financial situation and see if there are any options available to help them manage the rising WPI.
The rising WPI is a challenge for SMEs, but it is not insurmountable. By taking steps to manage the rising WPI, SMEs can protect their profits and ensure their long-term success.