Australian households are bracing for a prolonged financial squeeze as the Reserve Bank of Australia warns that real wages are set to retreat until mid-2027.
The RBA’s latest forecasts reveal that soaring consumer prices will outpace nominal pay gains, effectively eroding the purchasing power of workers for the next two years.
The grim outlook follows Feb. 3’s unanimous decision by the RBA board to hike the official cash rate to 3.85%, citing "persistent inflation" and a surge in private demand that the economy is currently unable to absorb.
With inflation projected to hit 4.2% this year—partly due to the expiration of government electricity rebates—economists warn that the gap between paychecks and prices is a necessary, albeit painful, lever to cool discretionary spending.
While Treasurer Jim Chalmers defended the government's record, noting two years of modest real wage growth since taking office, the new data suggests living standards may stagnate at 2011 levels.
Meanwhile, the Business Council of Australia argues that only a focus on productivity and private-sector investment can deliver sustainable wage increases without further fueling the inflationary fire.
As the political headache intensifies for Prime Minister Anthony Albanese, the durability of household consumption remains the "big swing factor" for the nation's economic stability.