Australians’ wages will continue to decline for at least a year as a wave of global inflation sends prices higher at twice the rate of workers’ pay, new figures released to Parliament today show.
Treasurer Jim Chalmers delivered the grim wages forecast as part of an update on how Australia’s economy had changed since the previous government’s last budget. The news was roundly negative: forecasts for economic growth were cut as predictions of where inflation would peak went up.
The last Australians were told, in official figures in the budget just before the election, inflation was on target to hit 4.25 per cent.
That forecast was then outstripped by the actual figure of 6.1 per cent recorded in the June quarter – and on Thursday MPs were told it would now peak at 7.75 per cent this year.
Dr Chalmers’ “harsh truth” was that while wages would rise on paper by what forecasts predict would be the fastest rate in a decade (3.75 per cent), these pay rises would be more than eclipsed by the rising cost of living.
“Households won’t feel the benefits of higher wages while inflation eats up wage increases, and then some,” he said.
The Treasurer said wages were now forecast to beat inflation only in the next financial year, which amounts to a wait of anywhere up to 23 months.
Labor came in for heavy criticism from the Coalition during the election campaign for saying it supported wage rises in line with inflation and was accused of exacerbating today’s rapid price hikes.
But the Treasurer said they had not contributed significantly to the current bout of inflation.
“The primary cause of this is not higher wages – nowhere near it,” he said.
“We don’t have an inflation problem because workers are earning too much.
“Real wages growth over the past decade has averaged just 0.1 per cent a year.
The Treasurer’s revised outlook named a complex mix of global factors as weighing on Australia’s economy including the war in Ukraine, jammed global supply chains and COVID restrictions in China.
Higher inflation also means more interest rate rises. An almost-certain future run of rate hikes would increase the financial pressure on people who have to pay more on their mortgages while earning less.
The Treasurer says local factors have played a part in pushing up prices and include the Coalition government’s failure to develop skills in the labour force or to bolster supply chains.
Inflation now poses a difficult question for Labor, which came to power promising to push wages higher.
The Treasurer said the government would boost wages by backing pay rises for some of the worst-off workers, directing investment towards industries that offer better jobs and helping workers develop their skills.
The other side of the equation for the government will be tamping down on those aspects of inflation it might be able to influence. The Treasurer said investment in renewable energy and efforts to address a labour shortage would ease interruptions to the supply of goods.