Australian workers are facing a harsh reality as real wage growth continues to lag behind inflation, leaving them feeling like they're on the losing end of a rigged economy. It's a situation that has persisted for years, and the recent data only adds fuel to the fire.
In 2025, wages grew at a slower pace than the rising cost of living, which clearly indicates that wages are not the primary driver of inflation. Workers have not only experienced a decline in their purchasing power but have also been impacted by the Reserve Bank of Australia's (RBA) decision to raise interest rates. This move, aimed at curbing inflation, has unfairly targeted workers who had no hand in causing the price surge.
As I reflect on this, I can't help but feel a sense of déjà vu. It's been a consistent pattern throughout my entire working life, with no signs of a breakthrough in sight. The last time we saw a significant wage increase was back in primary school days, and even then, the RBA was quick to step in and raise interest rates, seemingly determined to keep unemployment high and wage growth low.
Just this month, the RBA once again raised interest rates, citing the minutes of their board meeting. They claimed that the labor market remains "a little tight," with wages growing gradually and unit labor costs remaining high. In their view, this means there are not enough unemployed people, and employers are forced to offer better wages to attract workers, which they believe is causing inflation.
In response, the RBA increased interest rates, hoping to reduce spending, cut staff, and hours, and ultimately, prevent wage increases. It's a strategy that seems to blame workers for inflation, almost exclusively, without considering other factors.
The latest wage growth figures for 2025 show a worrying trend. Wages rose by just 3.4%, which is below the annual inflation rate of 3.8% and even lower than the old quarterly CPI rate of 3.6%. This means that, for the first time in over two years, the annual growth of real wages, adjusted for inflation, has gone into reverse.
It's a simple economic principle: if prices are rising faster than wages, wages cannot be the reason for the price increase. My colleague, David Richardson, from the Australia Institute, has used the RBA's own forecasts to demonstrate that the central bank is aware that wage growth is not the primary fuel for higher inflation.
Richardson's analysis takes into account wage growth, inflation forecasts, productivity growth, and the share of the total economy made up of wages. His calculations show that inflation is primarily driven by two groups: wages and non-wages. The non-wages category largely consists of company profits and small business income.
Three years ago, a similar analysis revealed that profits were the main cause of inflation in 2021 and 2022. The latest figures indicate that "profit-push" inflation is back, and it's this factor, not wage growth, that's causing the recent inflation jump and expected increases this year.
The RBA itself acknowledges this to some extent. In its February statement, it noted that strong demand allowed retailers to increase prices beyond what would be expected given changes in imported consumer goods prices. In other words, companies are raising prices purely to boost their profits.
And yet, oddly, there was no mention of this in the minutes of the RBA board meeting that decided to raise interest rates. Meanwhile, we see companies like JB HiFi announcing a 7.1% lift in net profit for the half-year, and the Commonwealth Bank reporting a half-yearly profit of $5.45 billion, up 7%.
It's a paradoxical situation where profits can grow faster than inflation, seemingly without consequence. The value of average real wages is now at the same level as it was 15 years ago, and over 4% lower than it was in March 2021. And the outlook is grim, with the Reserve Bank forecasting that real wages will remain essentially flat for the next two years.
Given the RBA's active efforts to prevent wage growth from outpacing inflation, it's no wonder that workers feel the economy is stacked against them. It's a complex issue, and one that deserves further discussion and debate. So, what are your thoughts? Do you agree that the economy seems rigged, or is there another perspective we should consider? Feel free to share your opinions in the comments below.
