{"id":63166,"date":"2026-05-14T15:39:00","date_gmt":"2026-05-14T05:39:00","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=63166"},"modified":"2026-05-14T15:39:00","modified_gmt":"2026-05-14T05:39:00","slug":"latest-wages-data-makes-a-mockery-of-the-rba-claims-that-the-economy-is-overheating","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=63166","title":{"rendered":"Latest wages data makes a mockery of the RBA claims that the economy is overheating"},"content":{"rendered":"

Last week, the RBA hiked interest rates again and tried to claim the economy was overheating. One way that we assess that claim is via the wages pressure in the labour market. An economy that is running out of productive resources, typically sees firms competing for scarce workers and bidding up wages to attract them. Yesterday (May 14, 2026), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia<\/a> – for the March-quarter 2026, which shows that the aggregate wage index rose by 3.3 per cent over the 12 months and is steady. Meanwhile, the annual inflation rate for the March-quarter came in at 4.1 per cent, while the monthly CPI inflation rate for March was 4.6 per cent. That means real wages are falling quite sharply, which is not consistent with an economy that is overheating and running short of resources. The RBA are grossly misrepresenting the current situation because they need cover to pursue their ideological crusade and assert their prominence in the policy making arena. The costs are borne by the workers who cannot get decent wage rises and the low-income mortgage holders that are transferring income (via the rate hikes) to the financial asset holders and bank shareholders (the ‘top-end-of-town’). It is extraordinary that the working class are so compliant in the face of this arrant power abuse by the elites.
\n<\/p>\n

Latest Australian data<\/h2>\n

The Wage Price Index:<\/p>\n

\n… measures changes in the price of labour, unaffected by compositional shifts in the labour force, hours worked or employee characteristics\n<\/p><\/blockquote>\n

Thus, it is a cleaner measure of wage movements than say average weekly earnings which can be influenced by compositional shifts.<\/p>\n

The summary results (seasonally adjusted) for the March-quarter 2026 were:<\/p>\n\n\n\n\n\n\n\n\n\n
Measure<\/td>\nQuarterly (per cent)<\/td>\nAnnual (per cent)<\/td>\n<\/tr>\n
Private hourly wages<\/td>\n0.8 (steady)<\/td>\n3.2 (-0.2 points)<\/td>\n<\/tr>\n
Public hourly wages<\/td>\n0.5 (-0.3 points)<\/td>\n3.3 (-0.7 points)<\/td>\n<\/tr>\n
Total hourly wages<\/td>\n0.8 (steady)<\/td>\n3.3 (-0.1 point)<\/td>\n<\/tr>\n
All groups CPI measure<\/td>\n1.4 (+0.8 points)<\/td>\n4,1 (+0.5 points)<\/td>\n<\/tr>\n
Trimmed mean inflation<\/td>\n0.1 (-0.3 points)<\/td>\n3.5 (-0.1 points)<\/td>\n<\/tr>\n
Weighted median inflation<\/td>\n0.2 (-0.2 points)<\/td>\n3.5 (+0.2 points)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

On price inflation measures, please read my blog post – Inflation benign in Australia with plenty of scope for fiscal expansion<\/a> (April 22, 2015) – for more discussion on the various measures of inflation that the RBA uses – CPI, weighted median and the trimmed mean.<\/p>\n

The latter two aim to strip volatility out of the raw CPI series and give a better measure of underlying inflation.<\/p>\n

They are showing no signs of an inflation outbreak.<\/p>\n

The ABS press release – Wage growth steady in March quarter<\/a> – notes that:<\/p>\n

\nThe Wage Price Index (WPI) rose 0.8 per cent in the March quarter 2026 and 3.3 per cent annually …<\/p>\n

Quarterly wage growth has remained steady at 0.8 per cent since September quarter 2025. Annual growth in wages was 3.3 per cent, largely unchanged from 3.4 per cent in December quarter 2025 …\n<\/p><\/blockquote>\n

Summary assessment:<\/strong><\/p>\n

1. Wages growth is stable – no outbreak evident.<\/p>\n

At the RBA governor’s press conference last week (May 5, 2026) – Monetary Policy Decision<\/a> – she claimed the following:<\/p>\n

\nI fully expect that people will try to make up their wages, real wages, the hit they\u2019ve taken from inflation by asking for higher wages. The extent to which they can achieve them depends on the tightness of the labour market. So it depends on how much bargaining power they have and to the extent that we think the labour market is still a bit tight, there probably will be some success there.\n<\/p><\/blockquote>\n

Nominal wages growth has been going backwards and real wages falling.<\/p>\n

Real wages have declined in 3 of the last 5 quarters and are now 6.5 per cent lower than they were in the June-quarter 2020.<\/p>\n

It tells you how far out of touch the technocrats in the RBA have become.<\/p>\n

2. Over the last 24 quarters, there have been only nine that have delivered real wages growth.<\/p>\n

Real wage trends in Australia<\/h2>\n

The summary data in the table above confirms that real wages growth overall (private and public sectors) has finally turned positive after 15 previous quarters of declining purchasing power.<\/p>\n

The following graph uses the All groups CPI to show the movement of real wages in the private sector from 2005 to the March-quarter 2026.<\/p>\n

The fluctuation in mid-2020 is an outlier created by the temporary government decision to offer free child care for the March-quarter which was rescinded in the March-quarter of that year.<\/p>\n

Overall, the record since 2015 has been appalling.<\/p>\n

Throughout most of the period since 2015, real wages growth has been negative with the exception of some partial catch-up in 2018 and 2019 and more recently after the COVID-19 supply shock abated somewhat.<\/p>\n

Since that COVID-19 shock, despite some real wages gains in some quarters, the overall real wage has slumped by 6.5 per cent.<\/p>\n

The inflation that we are witnessing, and witnessed during the COVID-19 disruptions, is not being driven by the labour market, which means that it is not a capacity constrained event.<\/p>\n

Once Trump and his mad buddy stop killing people and open trade routes again, the inflation will quickly drop, which is not redolent of a demand-side event – that tends to have persistence.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

The great productivity rip-off continues<\/h2>\n

While the decline in real wages means that the rate of growth in nominal wages is being outstripped by the inflation rate, another relationship that is important is the relationship between movements in real wages and productivity.<\/p>\n

As part of their attempt at justifying the interest rate hikes, the RBA have also been making a big deal of the fact that wages growth is too high relative to productivity growth.<\/p>\n

Historically (up until the 1980s), rising productivity growth was shared out to workers in the form of improvements in real living standards.<\/p>\n

In effect, productivity growth provides the ‘space’ for nominal wages to grow without promoting cost-push inflationary pressures.<\/p>\n

There is also an equity construct that is important – if real wages are keeping pace with productivity growth then the share of wages in national income remains constant.<\/p>\n

Further, higher rates of spending driven by the real wages growth can underpin new activity and jobs, which absorbs the workers lost to the productivity growth elsewhere in the economy.<\/p>\n

The Treasury likes to use the Real Unit Labour Costs (also equivalent to the wage share in income) as the measure of business costs.<\/p>\n

It is the ratio of real wages to labour productivity.<\/p>\n

From the March-quarter 2020 until the September-quarter 2024, RULCs growth was negative, which means there was a major redistribution of national income going away from wages to profits.<\/p>\n

As the economy started to recover from the COVID-19 supply shock, there was been positive but modest growth, which didn’t regain the ground lost by workers in the several quarters earlier.<\/p>\n

However, those modest gains were largely because productivity growth was negative in that period.<\/p>\n

So it is really lagging productivity growth that is the culprit and that reflects on management decisions (investment, innovation, etc) rather than trade unions forcing excessive wage increases.<\/p>\n

Nominal wages growth was anything but excessive.<\/p>\n

But as nominal wages growth has slowed a little and productivity growth has picked up the last 4 quarters, RULCs are once again falling and national income is shifting to a lower wage share and higher profits share.<\/p>\n

Here is the annual percentage change in RULC since 1998 (up to the March-quarter 2026).<\/p>\n

This whole period has been largely characterised by significant redistributions of national income away from wages to profits.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

Another way of seeing that redistribution is to study the following graph which shows the total hourly rates of pay in the private sector in real terms deflated with the CPI (blue or lower line) and the real GDP per hour worked (from the national accounts) (green or upper line) from the June-quarter 1999 to the March-quarter 2026.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

It doesn’t make much difference which deflator is used to adjust the nominal hourly WPI series. Nor does it matter much if we used the national accounts measure of wages.<\/p>\n

But, over the time shown, the real hourly wage index has grown by only 4.6 per cent, while the hourly productivity index has grown by 25.7 per cent.<\/strong><\/p>\n

The dip in productivity growth is mostly due to the parlous investment rates of Australian businesses as investment funds have been shifted in the financial markets chasing short-term profiteering.<\/p>\n

If I started the index in the early 1980s, when the gap between the two really started to open up, the gap would be much greater. Data discontinuities however prevent a concise graph of this type being provided at this stage.<\/p>\n

For more analysis of why the gap represents a shift in national income shares and why it matters, please read the blog post – Australia – stagnant wages growth continues<\/a> (August 17, 2016).<\/p>\n

Where does the real income that the workers lose by being unable to gain real wages growth in line with productivity growth go? <\/p>\n

Answer: Mostly to profits.<\/p>\n

These blog posts explain all this in more technical terms:<\/p>\n

1. Puzzle: Has real wages growth outstripped productivity growth or not? – Part 1<\/a> (November 20, 2019).<\/p>\n

2. Puzzle: Has real wages growth outstripped productivity growth or not? – Part 2<\/a> (November 21, 2019).<\/p>\n

Conclusion<\/h2>\n

In the March-quarter 2026, Australia’s nominal wage growth grew by 3.3 per cent, while the inflation rate was 4.1 per cent for the quarter and 4.5 per cent for the month of March.<\/p>\n

Real wages once again fell – second consecutive quarter.<\/p>\n

These trends make a mockery of the RBA claims that the economy is overheating.<\/p>\n

That is enough for today!<\/p>\n

(c) Copyright 2026 William Mitchell. All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":"

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