Australian currency is seen next to a wages graph in Brisbane
Economists expect solid wage rises but not as strong as the record figures in the September quarter. Image by Darren England/AAP PHOTOS
  • economy, business and finance

Wages outrunning inflation in win for household budgets

Poppy Johnston February 21, 2024

Australians are finally in a period of real wage growth, with pay packets keeping up with the pace of inflation – but only just.

The official wage price index rose 4.2 per cent in the 12 months to December, which was a little above forecasts and just above the 4.1 per cent increase in headline inflation during the same period.

On a quarterly basis, wages lifted 0.9 per cent in the final months of 2023, down from the record-breaking 1.3 per cent growth in the September quarter, the Australian Bureau of Statistics reported on Wednesday.

AMP deputy chief economist Diana Mousina said the return to real wage growth would help ease financial pressure on households. 

“Although the cost of living pressures from high interest rates and the rising income tax burden or bracket creep are still an issue,” the economist said. 

Treasurer Jim Chalmers said real wage growth was back “and ahead of schedule”.

Treasury forecasts had wages catching up to inflation early in 2024 rather than late 2023. 

Dr Chalmers also noted Australians were in line for further financial relief when the scheduled stage three cuts started flowing through in July.

“One of the best ways that we can help people deal with these cost of living pressures is to make sure that people are earning more and keeping more of what they earn,” he said. 

Shoppers in Melbourne
 As well as wage growth, the stage-three tax cuts will bring cost of living relief for households. Image by Diego Fedele/AAP PHOTOS 

But shadow treasurer Angus Taylor said living standards were still going backwards when higher borrowing costs and taxes were factored in.

“The combination of sharp increases in prices, 12 interest rate increases under this government, as well as a 27 per cent increase in personal income taxes being paid, means Australians are continuing to go backwards in their standard of living,” he told reporters on Wednesday.

“The only ‘solution’ the prime minister and treasurer have so far offered is to break their election promise on stage three tax cuts. It’s a band aid to a bullet wound.”

Bureau head of prices statistics Michelle Marquardt said pay growth in the December quarter was largely driven by organisation-wide annual wage and salary reviews. 

“Wage growth for December quarter 2023 saw a higher contribution from jobs covered by enterprise agreements than is typically recorded for a December quarter,” she said.

This was particularly apparent in the public sector, with agreements for healthcare staff and other workforces helping to lift salaries by 1.3 per cent over the quarter. 

This was the highest quarterly rise in public sector wages in 15 years.

In the private sector, which is more sensitive to a weakening labour market, wages lifted a smaller 0.9 per cent.

This was the same pace as in the quarter before.

Ms Mousina said the wage numbers were consistent with the central bank keeping interest rates on hold, for now.

“The labour market is likely to weaken from here which should see a slowing in wages growth as turnover in the labour market declines,” she said. 

But she warned productivity growth would need to pick up to sustain strong wage growth and stop unit labour costs rising. 

EY senior economist Paula Gadsby agreed there was not a lot of wiggle room, given wage growth had passed the Reserve Bank of Australia’s forecast peak ahead of schedule.

“The Reserve Bank’s outlook rests on productivity growth returning to its long-run average, and there is no guarantee this will happen,” she said. 

“This means we’re not completely out of the woods just yet.”