It’s the grim chart that suggests Australian workers face a wage horror scenario.
Real wages – workers’ incomes adjusted to the rising cost of living – are declining.
Perhaps that’s no surprise to anyone who has been trying to buy fresh fruits and vegetables at the grocery store lately amid rising prices and massive interest rate hikes.
But dr. Greg Jericho, the policy director at the Center for Future Work, has some bad news.
It’s even worse than it sounds.
As households grapple with the rising cost of basic necessities, real disposable household income will fall in the coming months, pushing workers back to what they earned in real terms more than a decade ago.
“The latest Reserve Bank statement on monetary policy estimates that real wages will continue to fall through the end of next year, after which they will be back to 2008 levels,” he said.
dr. Jericho describes the chart as “horrific”.
“In real terms, prices and wages will have increased by exactly the same amount since 2008. So there is no improvement,” said Dr. Jericho.
“Your pay may have increased by 20 percent. But prices have increased by 30 percent.
“It’s terrible. Normally it goes up. Before the pandemic it rose, maybe a little slower than during the mining boom, for example, but it continues to rise. It is quite drastic.”
For three years, the RBA has forecast wages to decline.
The RBA now estimates that real wages will decline for fourteen consecutive quarters from the September 2020 quarter through the December 2023 quarter.
According to the latest monetary policy update from the Reserve Bank, released Friday, the situation will not improve until 2024.
“It’s most pronounced for low-income people because what we’re seeing right now with inflation is that the prices of what we call non-discretionary items or essential items are rising faster than some sort of discretionary luxury item,” said Dr. Jericho.
“So the prices of things you can avoid paying, like food, like energy, bills, rent are rising faster than the things you can decide not to buy, like a vacation.
The major drivers of inflation are the war in Ukraine and supply chain disruptions caused by Covid.
“Higher prices, especially for food and fuel, are likely to affect low-income households (who tend to spend a higher proportion of their income on these necessary items) in particular,” the RBA said.
“While household balance sheets are generally strong and many households should be able to absorb these price increases, other households have limited savings buffers and may need to reduce spending elsewhere.
“For some of these more vulnerable households, the impact of price increases will be mitigated to some extent by indexation of social assistance benefits twice a year, although short-term price increases will reduce recipients’ real incomes.”
But the RBA’s grim forecasts also raise new questions about Labor’s pledge to tackle the cost of living.
The Labor election campaign was based on the slogan that “everything goes up except your pay.”
This data suggests that this will not improve in the coming months.