Government-funded programs and state agreements shape quarterly outcome
Australia’s Wage Price Index (WPI) rose 0.8% in the December quarter, confirming a sustained slowdown in wage growth that economists say is broadly in line with expectations, according to a Westpac report published Wednesday by senior economist Justin Smirk.
The result, which matched forecasts from Westpac, market consensus, and the Reserve Bank of Australia, marked the second consecutive quarter at that pace – a step down from the 0.9% quarterly gains recorded in the first half of 2025. On an annual basis, the WPI edged up from 3.3% in September to 3.4% in December, though Smirk noted the outcome was influenced by routine seasonal revisions that lowered the September reading.
Health sector drives gains
Health care and social assistance was the largest single contributor to the December result, adding 0.18 percentage points to the quarterly outcome. Education and training was the next largest contributor, at 0.07 percentage points. According to the Australian Bureau of Statistics, two major Commonwealth-funded initiatives – one in aged care and another in early childhood care and education – drove wage increases across the private sector in those industries. Public sector growth in the same category was linked to scheduled enterprise agreement rises for frontline health workers in New South Wales.
Smirk said that, absent the health care sector’s outsized gains, the quarterly WPI increase would likely have been closer to 0.7%.
Private sector wages rose 0.8% in the quarter, leaving the annual pace steady at 3.4%. The broader measure of private wages, including bonuses, fell to 3.3% annually – the slowest since March 2022. Public sector wages also lifted 0.8% in the quarter, pushing the annual rate to 4.0%, though still below the recent peak of 4.3% recorded in December 2023. State governments accounted for 89% of public sector wage growth in the quarter, reflecting their position as the largest public sector employers.
The Australian Bureau of Statistics recorded a higher share of jobs receiving a wage increase in 2025 – 21%, compared with 16% in 2024 – though the average increase moderated from 3.6% to 3.5%.
Westpac sees further slowdown
Westpac forecasts the annual WPI will slow to about 3.0% by the December quarter of 2026. The bank said the Reserve Bank of Australia is nonetheless likely to remain cautious, given weak productivity outcomes that could keep labour cost growth on the central bank’s inflation watchlist.
Western Australia recorded the fastest annual wage growth among the states at 4.1%, while Victoria recorded the slowest at 3.2%. Across industries, health care and social assistance reported the highest annual pace at 4.4%, and finance and insurance the lowest at 2.7%.
Wage growth failing to keep pace
In the year to December 2025, real wages in Australia declined, as wage growth failed to keep pace with rising consumer prices. New data shows that although the WPI rose 3.4% annually, this was outstripped by inflation, which reached an annual rate of about 3.8%, resulting in a drop in real wages of around 0.4% – the first annual decline in two years. This contraction in real purchasing power highlights ongoing cost-of-living pressures facing workers across the nation.
The decline in real wages has drawn attention from economists and policymakers. The Reserve Bank of Australia’s latest forecasts indicate that real wages are expected to remain subdued, with some projections suggesting they may not grow positively until mid-2027, if inflation persists above wage gains.
Political debate has also intensified.
Treasurer Jim Chalmers defended the broader wage growth performance, noting over a decade-long streak of annual wage increases above 3% under the current government, but acknowledged that inflation’s persistence has eroded gains in real terms. In contrast, opposition figures and former central bank officials, including former Reserve Bank of Australia governor Philip Lowe, have critiqued fiscal policy and weak productivity growth as contributing factors to inflationary pressure and stagnant real incomes.
Labour groups, including union leadership, have amplified calls for above-inflation wage increases in 2026 to help restore workers’ purchasing power. Some union leaders have signalled the possibility of industrial action unless pay rises exceed the current inflation rate.
“Given inflation is 3.8% and rentals are higher than this, union members will need to be looking at at least 4% to keep up,” ACTU secretary Sally McManus told The Australian.
