Whether your pay rise is keeping up with prices is one of the most important questions in the economy. Here’s how wages growth is measured, what real wages are, and why the Reserve Bank cares.
Wages growth measures how quickly pay is rising across the economy. It’s one of the most important indicators for households, businesses and the Reserve Bank.
The Wage Price Index
The main measure in Australia is the Wage Price Index, or WPI, released by the Australian Bureau of Statistics every three months.
It tracks the cost of paying for the same jobs over time, much like the consumer price index tracks the cost of the same basket of goods. Because it measures the same jobs, it isn’t affected by changes in the mix of workers, such as more people moving into higher-paid jobs.
The WPI measures base pay rates. It doesn’t include bonuses or extra hours.
Other measures, such as average weekly earnings and figures from the national accounts, capture total earnings, including changes in hours and the mix of jobs.
Real wages
What matters most for living standards is whether pay is rising faster than prices. That’s measured by real wages, which compare wages growth with inflation.
If wages rise 3% in a year but prices rise 4%, real wages have fallen by about 1%, and workers can buy less with their pay.
Real wages fell sharply in Australia in 2022 and 2023, when inflation surged above 7%, before recovering as inflation eased. Higher inflation in 2026 has again put pressure on workers’ buying power.
How pay is set
In Australia, pay is set in three main ways: individual agreements and contracts, enterprise agreements negotiated between employers and unions or employees, and awards.
Awards set minimum pay and conditions for particular industries and jobs. Each year, the Fair Work Commission reviews the national minimum wage and award rates. In June 2026, it raised them by 4.75% from 1 July.
Why the Reserve Bank cares
Wages are the biggest cost for many businesses. If pay rises quickly without workers becoming more productive, businesses often pass the higher costs on in prices, adding to inflation.
That’s why the Reserve Bank links sustainable wages growth to productivity growth. When productivity is weak, it worries that strong pay rises could keep inflation above its 2% to 3% target.
On the other hand, very weak wages growth, as Australia experienced for much of the 2010s, can hold back spending and living standards.
Unions and employer groups often disagree about how much pay should rise, especially when inflation is high. Unions argue workers need pay rises to keep up with living costs, while employers warn large rises could cost jobs and push up prices.
