Wages will still lag inflation in 2023, even as pay packets get fatter

Australia’s pay packets should continue to increase in 2023, but experts warn wages won’t keep pace with cost-of-living pressures because of inflation.

Record-breaking wage rises failed to keep up with the cost of living over 2022 – and job-seeker platform Seek’s senior economist Matt Cowgill said this lag will occur again this year.

“Wages growth will be a bit faster than it was last year, inflation will be a bit lower than it was last year, but inflation will still outpace wages growth,” he said.

“What that means is that real wages – inflation-adjusted wages  – are likely to be lower in a year’s time than they are now.”

The latest Australian Bureau of Statistics data, released in November, shows the Wage Price Index (WPI) rose 3.1 per cent annually in 2022 – the highest quarterly growth in hourly wages seen since 2012.

Data from Seek also shows its Advertised Salary Index rose 4.7 per cent over the year to December, meaning advertised salaries are growing at the fastest annual pace since Seek started keeping records in 2016.

But inflation still outpaced these record-breaking rises in 2022, as the Consumer Price Index (CPI) rose 7.8 per cent over the year.

Gap narrowing, not closing

The Reserve Bank of Australia predicts the WPI will pick up to more than 3 per cent by mid-2023, and Mercer data shows Australian employers are budgeting for a 3 per cent median salary increase.

The CPI is expected to rise by more than 6 per cent in the same period.

Tim Harcourt, professor and chief economist at the University of Technology Sydney’s Institute for Public Policy and Governance, said he expects inflation to slow down this year while wages rise, meaning the gap between the two could get smaller.

But it won’t completely close.

“Inflation is still ahead of wages [but] the gap might be narrowing,” Mr Harcourt said.

Mr Cowgill said real wages are having to play catch up with the cost of living because of the rapid rate of inflation that shocked Australia and forced RBA head Philip Lowe to apologise to Australians for predicting interest rates would remain at record lows until 2024.

“It just takes time for wages and salaries to adjust,” Mr Cowgill said.

“Something like 40 per cent of Australians are paid under … enterprise agreements that are only typically renegotiated every three or four years at a time.

“So there’s lags built-in, where it takes some time for changes in economic conditions to be reflected in wages growth.”

Some inflation relief, but not much

In more heartening news, Woolworths’ chief commercial officer, Paul Harker, told parliament this week that grocery prices might start to ease  in 2023.


Grocery prices may be easing off, but not by much. Photo:AAP

There was some evidence that the cost of vegetables, oils and cereals like wheat were coming down, Mr Harker said.

“In 2023, there are some reasons to be a little optimistic that the very worst of the inflationary cycle is over,” he said.

“We do expect the rate of inflation will moderate across the year, but will remain with us. Rising interest rates and rents will no doubt put further pressure on household budgets.

“As a mainstay of communities across the country, we understand the role we need to play to help Australians in uncertain times. We are determined to do our bit.”

He said inflationary price hikes on some groceries were the worst they had been in 20 years.

“This is the result of system-wide, input-cost pressures which are very real and largely unavoidable for our suppliers,” Mr Harker said.

“Customers want an affordable, convenient and high-quality weekly shop. Suppliers want a fair and sustainable trading relationship with us, and we want to remain competitive and relevant in the market.

“Doubtless, we haven’t always got things right along the way, but we’ve sought to balance these various interests as best we can.”

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