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No one likes going backwards financially, and last week Treasurer Jim Chalmers received some pretty grim news on this front.<\/p>\n
A two-year period in which wages rose more quickly than inflation came to an end in December, when the annual pace of wage growth was 3.4 per cent, below the inflation rate of 3.8 per cent.<\/p>\n
While Chalmers pointed out wage growth has been above 3 per cent for more than three years, any decline in \u201creal\u201d, or inflation-adjusted, wages is unwelcome news for a government. Especially a Labor government that\u2019s vowed to fight the cost-of-living crisis with stronger pay rises.<\/p>\n
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Treasurer Jim Chalmers Dominic Lorrimer<\/p>\n
Even so, the economy is a complex beast that is hard to sum up with a few simple figures, and when you look more closely at how household incomes are faring, the truth is more complicated than \u201cwe\u2019re all going backwards\u201d.<\/p>\n
For example, Reserve Bank governor Michele Bullock also told a parliamentary hearing<\/a> this month that broader measures of household income \u2013 which take into account more than just wages \u2013 tell a more positive story about how real incomes have grown since COVID-19.<\/p>\n \u201cWe\u2019re looking at a measure of what people are actually being paid. It\u2019s not shooting the lights out either, but it is above where it was pre-COVID,\u201d she said.<\/p>\n Or, if you look at how many customers are falling behind on their home loans, things have been getting better, not worse. Indeed, the main surprise in the latest round of bank profits was the very low number of borrowers unable to repay their loans.<\/p>\n So, how is it possible to get such different impressions about the cost-of-living crisis? Are all workers\u2019 incomes really going backwards after inflation, as those wage figures suggest? Or are things not quite so bad?<\/p>\n One reason for the conflicting narratives on the cost of living is technical: it depends what you\u2019re measuring. There\u2019s a huge range of data and statistics on the economy, and each can tell a different story. Even something you\u2019d think would be simple, such as household incomes, can be measured in various ways.<\/p>\n Last week\u2019s wage price index, for example, is not necessarily a great picture of most people\u2019s income over time. The index tracks hourly pay across a \u201cbasket\u201d of jobs, but doesn\u2019t measure what happens when someone gets a pay rise from being promoted, or how their pay changes when they move to a new employer. Given that most of us do change jobs or roles over the years, that\u2019s a significant gap.<\/p>\n Related Article Without getting too far into the minutiae, the RBA also looks at a different, broader, measure with the clunky name of average earnings from the national accounts (AENA). It includes bonuses, overtime and pay rises from promotions, and the RBA says it\u2019s a \u201cmore complete measure\u201d of labour earnings in the economy.<\/p>\n This broader measure has been higher than the wage price index that was released last week \u2013 though it\u2019s also more volatile. AMP economists say AENA is up 42 per cent since December 2020, which is more than twice as much as the increase in wages over that time.<\/p>\n This suggests the reality for many households is not quite as bad as the recent decline in real wages would have you believe.<\/p>\n Over the longer term, however, there\u2019s no getting around the fact that real wage growth has not been a strong point for the Australian economy over the past 15 years or so.<\/p>\n Wage growth was miserable for much of the 2010s, and then the surge in post-COVID inflation landed a major blow to our spending power, from which we are still recovering.<\/p>\n AMP deputy chief economist Diana Mousina says inflation has risen by 23 per cent since the end of 2020, while wages have risen less than that, at 18 per cent.<\/p>\n While the media will always make a big deal about quarterly movements in the consumer price index and the wage price index, this longer-term hit from inflation probably matters more to our everyday sense of the cost of living. That\u2019s because most of us aren\u2019t thinking about the latest inflation numbers when we\u2019re at the shops, but we do notice that things at the supermarket are a lot more expensive than they were five years ago.<\/p>\n What\u2019s more, Mousina says it could take years more for wages to catch up to inflation and make up for that hit, so \u201cconcerns about cost of living are unlikely to go away\u201d.<\/p>\n What can we do about it?<\/p>\n Editor’s pick The RBA is using interest rates to try to get inflation back in its range, which in a roundabout way would eventually help with \u201creal\u201d wages by lowering the pace of price rises.<\/p>\n But it\u2019s far from ideal. The RBA\u2019s weapon, higher interest rates, is blunt (it slows the whole economy) and somewhat arbitrary: it hurts people who have borrowed to buy a home, especially more recent buyers, while sparing others.<\/p>\n The more important long-term objective is what every business type and economist is on about, and that\u2019s improving our poor productivity performance. This sounds dry, but it has a direct link to inflation and the ability of workers to get sustainable wage rises.<\/p>\n Why is productivity so closely linked to wages and inflation? Basically, if a business can get its workers producing more output per hour, it should be more able to give them a pay rise without needing to raise its prices as much to cover the higher wages bill. If many businesses can do that (give out pay rises, without raising prices as much as they would otherwise), that helps \u201creal\u201d wage growth.<\/p>\n It\u2019s the secret sauce of capitalism, and the reason material standards of living have risen over time.<\/p>\n None of this makes improving productivity easy \u2013 but it\u2019s why so many people are demanding Chalmers take action in this year\u2019s federal budget.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n CORRECTION<\/p>\n An earlier version of this story said that AMP economists said AENA is up 42 per cent since December. 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Clancy Yeates<\/a> is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"February 23, 2026 \u2014 12:00am Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":498098,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-498097","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/498097","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=498097"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/498097\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/498098"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=498097"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=498097"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=498097"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}