URGENT UPDATE: Inflation has dealt a significant blow to real wage growth in Australia, marking the first decline in over two years. New data from the Australian Bureau of Statistics reveals that real wages have fallen, prompting fears of further interest rate hikes.
As of December 2025, seasonally adjusted wages rose by 3.4% annually, an increase from 3.3%%. However, this growth pales in comparison to the 3.8%% inflation rate, signaling that wages have finally failed to keep pace with rising costs. This alarming trend has triggered immediate discussions about the potential for the Reserve Bank of Australia to increase interest rates in response to escalating inflation pressures.
In the final quarter of 2025, wages increased by 0.8%, consistent with the previous quarter. Despite the downturn in real wage growth, Treasurer Jim Chalmers remains optimistic. “While we would have liked to have seen real wage growth, today’s result is better than what we inherited,” he stated, emphasizing that this is the longest stretch of wage growth above 3% in more than a decade and a half.
However, economists are raising alarms. Paula Gadsby, senior economist at EY, warned that the disparity between wage growth and inflation could compel the Reserve Bank to act. “The wage price index has trended down from its peak of 4.3%% at the end of 2023, but broader measures of labor costs continue to rise unsustainably,” she stated. Gadsby anticipates that further interest rate hikes will be necessary, likely within the first half of this year.
In a critical response, Shadow Treasurer Tim Wilson highlighted the impact of these figures on everyday Australians. “The treasurer is engaging in a form of demand denial about his responsibility to drive inflation exceeding wages,” he remarked during a press conference in Adelaide, underscoring the government’s failure to manage inflation effectively.
The Australian Bureau of Statistics also noted that the year to December saw a 4% increase in public sector wages, compared to just 3.4%% in the private sector. The health care and social assistance industries were the top contributors to wage growth for the quarter, driven by recent pay rises for aged care workers, which took effect in October as part of a Health Services Union case.
Furthermore, childcare workers received a 5% wage increase in December, following a significant 10%% boost in 2024. Harry Murphy Cruise, head of economic research at Oxford Economics Australia, stated that wage growth is likely to remain robust due to a tight labor market. “If capacity constraints persist and employers are simply paying more for the same level of output, stronger wages will translate into higher unit labor costs, prolonging inflation pressures,” he warned.
As inflation continues to surge, the implications for Australian households are profound, with many feeling the pinch in their budgets as wage growth fails to keep pace. With economic analysts closely monitoring the situation, all eyes will be on the Reserve Bank as they prepare for possible rate adjustments in the coming months.
Stay tuned for further updates as this developing story unfolds and its impact on the economy becomes clearer.
