In every single Australian industry, inflation has risen faster than wage growth over the past year, according to Greg Jericho, a Guardian columnist and chief economist at the Australia Institute. Meanwhile, major corporations are reporting significant profit increases, highlighting a stark contrast in the economic landscape.
Corporate Profits Soar Amidst Wage Stagnation
Jericho notes that in recent months, NAB reported a 5% increase in its profits compared with the previous year, CBA reported a 7% increase in its cash profit, BHP recorded annual profit growth of 9%, and Rio Tinto saw a 47% profit increase in the first half of this year. These figures stand in sharp contrast to the wage data released for the same period.
The June quarter wage price index figures showed that private sector wage growth averaged just 0.7% in April, May, and June, the lowest since December 2021. If this pace continued, it would equate to an annual growth of only 2.8%, which Jericho describes as 'truly pathetic.'
RBA Rate Hikes and Wage Growth Concerns
The Reserve Bank of Australia (RBA) raised interest rates in the June quarter, partly due to concerns about the 'risk' of wages increasing. However, at that time, private-sector wages were growing at their slowest rate in nearly six years. The annual growth in the year to June saw private-sector wages slow from 3.2% in March to 3.1%, the slowest since June 2022.
Overall wage growth remained steady at 3.2%, supported by solid growth in public-sector wages. The Australian Bureau of Statistics (ABS) provided data showing that public-sector-driven industries like public administration and healthcare were the two biggest contributors to overall inflation, followed by construction.
Inflation Outpaces Wages Across All Industries
Over the past year, inflation rose faster than wage growth in every industry. Even in construction, which should theoretically see wage increases due to datacentre construction and a nationwide worker shortage, wages grew slower than inflation. Jericho argues that if a wage breakout cannot occur in an industry with such high demand, it is clear that wages are not growing out of control and the labour market is not 'tight.'
The ABS also found that in the June quarter, 79% of jobs that received a wage change had an annual wage growth of less than 4%. This is the highest proportion since 2022 and indicates that most wage growth agreements are consistent with inflation below 3%.
Permanent Loss of Real Wages
The drop in real wages is now so severe that even with the RBA's forecasts through to the end of 2028, workers can only hope that by December 2028, their real wages will be equivalent to what they were 17 years earlier. Jericho states, 'We need to acknowledge that the loss of real wages is permanent.'
Efforts to increase wages faster than inflation to recover lost value are met with concerns from the RBA, leading to higher interest rates. Meanwhile, major corporate profits rise well above inflation, and the response, Jericho notes, is 'crickets. Or praise that it is a sign of a strong economy.'
