Wages growth running out of steam after inflation spike
The reawakening of the inflation dragon is not expected to put an end to Australian workers’ record real wage growth just yet.
Pay packages are expected to increase in real terms for the eighth consecutive quarter in September; The Australian Bureau of Statistics is likely to announce this when it releases the final version of its wage price index on Wednesday.
Market economists estimate that wages rose at an annualized rate of 3.4 percent in the three months to September 30; This is the same percentage increase experienced in the previous quarter.
But while in June this meant a 1.3 per cent increase in real wages, a sharp rise in inflation to 3.2 per cent in September means workers will see the real improvement in their incomes contract significantly compared to consumer prices.
If the economic consensus is correct, this means real wages rose by just 0.2 percent; This is the lowest increase since December 2023.
The lasting effects of strong increases in minimum wages and award wages are expected to keep the wage price index high, even as the moderate rise in unemployment indicates an increasingly cooling labor market.
While inflation is expected to rise further as the government’s energy rebates end, JP Morgan strategists expect real wage growth to turn negative from the December quarter onwards.
But as households feel wealthier and spend more, the strong rise in property prices will continue to boost consumption.
“As disposable income growth from RBA easing, tax cuts and energy subsidies weakens, we expect accumulated household wealth to support consumption spending in 2026, partially offsetting the normalization in real income growth,” said Tom Ryan of JP Morgan.
HSBC chief economist Paul Bloxham said without a recovery in productivity growth, continued strength in wage costs would continue to push inflation higher and prevent the RBA from cutting interest rates further in 2026.
Finance Minister Jim Chalmers said that since Labor was elected, inflation has fallen, unemployment is low, the gender pay gap has reached record lows, interest rates have fallen three times this year and real wages and living standards are starting to rise again.
“Wages were holding steady under the Liberals but are now on the rise under Labour.”
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