EDITORIAL: Real wages reversal another blow for workers

The nation was heading towards the 2025 Federal poll, and Treasurer Jim Chalmers was on his soapbox.

Part of his pitch revolved around how inflation was down, interest rates were coming down and real wages were up. It is starting to seem like a long time ago already.

By a unanimous decision, Reserve Bank of Australia governor Michele Bullock and her monetary policy board on February 3 raised interest rates by 25 basis points to 3.85 per cent, which marked the first increase since November 2023.

It also reversed the effects of the RBA’s August rate cut after inflation soared to 3.8 per cent at the end of last year, or an annual pace well above the RBA’s 2-3 per cent target.

The consumer price index was expected to hit a two-year high of 4.2 per cent by mid-year, with the board’s minutes noting that high inflation was broadly based, “had increased sharply and was high by historical standards”.

“Measures of inflation expectations at the two-year horizon had increased, most noticeably in Australia,” the minutes revealed on Tuesday said.

Updated RBA forecasts, released early this month, had headline and underlying inflation remaining above target until June 2027 and not returning to the mid-point of that band until late 2028.

Inflation and interest rate reversals represented strikes one and two on that rosy assessment by Dr Chalmers last year.

Strike three came on Wednesday. New data showed Australian workers have seen their pay levels go backwards and lag behind inflation for the first time in more than two years.

The wage price index edged up just 3.4 per cent last year. Adjusted for inflation, real wages went backwards by 0.4 per cent, marking the first cut to pay levels since the September quarter of 2023.

There was also a disparity between public and private sectors. Public servants saw their pay levels soar by 4 per cent, meaning government-funded professionals enjoyed a small 0.2 per cent pay increase, in real terms, during a time of heightened Commonwealth spending.

This occurred as private sector workers, getting a 3.4 per cent increase, missed out as inflation ate up their pay rises. Public sector wages outpaced those in the private sector for the fourth straight quarter.

It was another piece of evidence for economists who argue that government spending is a major driver of inflation, and therefore interest rate increases.

And yet Dr Chalmers found time to attack former RBA governor Philip Lowe, who added his voice to those cautioning about government spending, claiming Dr Lowe “would have liked to have been reappointed by the government” but was now “a fairly persistent critic”.

It was a cheap shot. And an indication that Dr Chalmers is under pressure. For there are growing and regular signs that the economic policy wagon is not rattling along smoothly as Labor forecast before its re-election, but is going off the rails.

With families and workers facing the fallout.

Responsibility for the editorial comment is taken by Editor-in-Chief Christopher Dore.