Greetings fellow investors!
So far this century, wages in Australia have grown comfortably AHEAD of inflation (left chart), with public sector wage growth (pink line) leading private sector wages growth (blue).
However it is a very different picture when we look at just the post-Covid period of high inflation.
Since the start of 2020 (right chart), wages have LAGGED well behind inflation, with both private and public sectors suffering NEGATIVE real wage growth.
Post-Covid inflation
Since Covid, public sector wages have lagged the private sector, despite the rapid rise of public sector employment and wage rises at Federal and State levels.
The GAP between consumer prices (grey dotted line) and wages reached its widest point in mid-late 2023.
The gap narrowed a little in 2024 as wage rises gained some ground against prices, but the gap has been WIDENING since late 2025 as inflation picked up again.
Inflation causes
Governments and central bankers are always quick to blame inflation on war-time fuel price spikes, but inflation in Australia was already running ABOVE 5% BEFORE Russia invaded Ukraine, and was still running above 4% BEFORE the US started its war on Iran.
See –
· Iran war hands politicians another free ticket to blame oil prices for inflation & rate hikes (14-Mar-2026)
The real causes of the post-Covid inflation have been unnecessarily loose Monetary policy (RBA keeping interest rates too low for too long), and loose Fiscal policy (unrestrained deficit spending sprees from Federal and State governments, including cash hand-outs, subsidies, productivity-free wage rises.)
The problem is that the simplistic/populist solution – increasing wages to compensate for rising prices without any gains in productivity - just intrenches the inflationary spiral further. Giving people more money to chase the same quantity of goods and services pushes up prices, because (a) the wage rises increase input costs of the items, and (b) suppliers are incentivised to raise prices because supply has not expanded.
Outlook?
The outlook is not encouraging:
First: Monetary policy. The RBA committed a series of mis-steps since Covid. It raised interest rates LATER, SLOWER, and LOWER than the rest of the world, resulting in our inflation remaining HIGHER. It then gave us three unnecessary rate CUTS in 2025 that revived inflation and had to be reversed in 2026. The RBA remains reluctant to rates now even with inflation still well above target, unemployment below the ‘non-inflationary rate’, and unemployment kept artificially low by government job creation.
Second: Fiscal policy. Federal and State governments continue on their inflationary spending sprees running wartime-like deficits and racking up debts. They continue to pander to populist demands for hand-outs, subsidies and productivity-free wage rises.
In addition, all political parties are caving in to populist demands to cut immigration – from backpackers to students to skilled migrants, putting further upward pressure on wages and inflation.
It is not good enough to just sit back and wait for global oil prices to fall. The focus must shift from compensatory wage rises, hand-outs and subsidies, to cutting un-productive spending, and lifting worker productivity / output.
That is the only way to increase real wages and living standards sustainably.
We need a return to old-fashioned discipline and fortitude on both Monetary and Fiscal policies. That requires vision, tough decisions and sensible debate, not just glib, populist, knee-jerk short-term ‘fixes’.
Why is this important for investors?
Although this article is about aggregate wages and inflation averaged across the nation, and not individual wages and inflation for each person, the aggregate numbers are what drive official policies and decisions, which in turn drive interest rates, financial markets and returns in our investment portfolios.
Further reading:
On inflation –
· What’s your personal inflation rate? And how it affects your investment strategy & retirement planning (14-Jul-2026)
· Australian inflation well ABOVE target once again. Here’s how I rate the RBA’s record on inflation targeting (20-July-2026)
· Why are Australian cash rates HIGHEST in the world? Five simple reasons (20-Apr-2026)
On why inflation is critically important for investors –
· Inflation BIG Picture: Boomers got rich by lucky timing. Next Gen to get higher inflation & rates (25-May-2026)
· The Low Inflation era of great returns is over. Investing just got a whole lot harder! (16 Apr 2024)
‘Till next time – safe investing and stay healthy!