For most of 2022 and 2023, Australian workers experienced a painful squeeze: nominal wages were rising, but inflation was rising faster. In real terms — what wages actually buy — most workers were going backwards. That calculation has now shifted, and for the first time in three years, real wages are growing across most of the workforce. But the picture is uneven.
The Wage Price Index
The ABS Wage Price Index (WPI) — which measures wage changes for a fixed basket of jobs, controlling for changes in the composition of the workforce — has been running at 3.5–4.0 per cent annually, its fastest pace since 2009. With underlying inflation now tracking below 4 per cent and heading lower, the gap has closed and real wages are in positive territory for most workers.
Who Is Winning
Workers in sectors facing genuine labour shortages have seen the strongest gains. Construction, healthcare and social assistance, accommodation, and food services have all recorded wage growth well above average, driven by competition for scarce workers. The enterprise bargaining system, once moribund, has come back to life — major EBA outcomes in the public sector have been running at 3.5–5 per cent, setting a floor for private sector negotiations.
Who Is Still Falling Behind
Workers in lower-wage occupations who are not covered by enterprise agreements, and who rely on the minimum wage, have seen their real wages recover more slowly. While the Fair Work Commission has delivered above-inflation minimum wage increases for three consecutive years, the cost of living pressures in housing and energy remain most acute for lower-income households, meaning the recovery in real living standards is less complete for those who can least afford it.
The RBA's View
The Reserve Bank is watching wages growth carefully. A wages-price spiral — where higher wages lead to higher prices, which lead to demands for higher wages — is the central bank's nightmare scenario. Current data suggests this risk is contained: productivity growth is recovering, unit labour cost growth is moderating, and inflation expectations remain well-anchored. The RBA's assessment is that the current pace of wages growth is consistent with achieving the inflation target, which is why the cutting cycle has been able to begin.
