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Pedestrian.tv
National
George Shiers

Wages Have Outpaced Inflation For First Time In 3 Years, But That’s Only Half The Story

Australians have had their first real-term pay rise in three years as salary increases beat out inflation, but an expert says the numbers only paint part of the picture.

The good news came after the Australian Bureau of Statistics (ABS) revealed that wages rose by an average 4.2% last year, more than the annual rate of inflation of 4.1%.

This means that not only were raises outpacing inflation, the last three months of 2023 had done so at the fastest rate in almost 15 years.

Healthcare workers benefitted the most, with an average pay rise of 4.2%. However, those working in finance or insurance saw the least, going home with an annual increase of just 3.2%.

Most of the pay increases were given out in the public sector, beating out the private sector for the first time in three years.

Why does everything still feel so expensive?

However, if it feels like everything still seems far too expensive, that’s because it probably is. The increase to the cost of living is measured using the Consumer Price Index (CPI), which was at 4.1% in the year to December — lower than the average 4.2% wage increase.

However, Australian National University Professor Peter Martin said in a report that the CPI is flawed, and the reality is that the real cost of living figure is closer to 9%.

Supermarket costs are a major consideration in measuring inflation. Image: Getty.

Here’s how it works: the CPI measures all the major costs households typically face, such as food and electricity, and basically sees how much they increase over time. It was going well until, in 1998, the bureau changed the way it worked the index and stopped including mortgages in its calculations. This created a flow-on effect and made the index less accurate as a whole.

“The index actually does a pretty good job of measuring changes in living costs at times when mortgage rates aren’t changing much,” Martin said.

“But at times when they are tumbling, it’ll overestimate living costs. And when mortgage rates are soaring, as they have been lately, it will way understate what’s happening to living costs.”

He said it was these rates that made the increases in prices hurt so much.

“The overall increase in prices faced by wage-earners, 9%, is way above the typical wage increase of 4%.”

“Most of the time, mortgage rates have either increased gradually or been cut, meaning the difference between what the CPI has been telling us and what’s been happening to us hasn’t been too stark. It’s been stark lately because interest rates have been rising quickly.”

Ultimately, he said that all this meant was that the buying power of wages had been falling for the past two and a half years.

Even with a pay rise, genuine financial relief could still be some way off.

The post Wages Have Outpaced Inflation For First Time In 3 Years, But That’s Only Half The Story appeared first on PEDESTRIAN.TV .

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