Wages grew 3.4% through 2025

Wages grow more than in 2024 (3.2%) but less than 2023 (4.3%), with growth still well above pre-Covid levels.

Headline inflation through 2025 was 3.8% and, for only the second time since 2020, wage growth in the calendar year was higher than underlying inflation (which excludes things with volatile prices like groceries and fuel).

However, there are still several important spending categories that are becoming relatively less affordable, the 3.4% wage increase significantly less than what the cost of housing (up 5.5% in 2025), education (up 5.4%), and recreation and culture (up 4.3%) went up by.

Health expenses also increased 3.6% throughout 2025 according to the CPI, and there's little sign of affordability improving in the space after the Government approved an average increase of 4.4% to private health premiums from April.

Note: References to wage growth and inflation are both in seasonally adjusted terms

Wages as the RBA expected?

The 3.4% wage growth through 2025 lined up exactly with the forecasts in the RBA's most recent Statement on Monetary Policy (SOMP).

Using RBA methodology, it means the real wage price index (adjusted for inflation) declined 0.3% through the year, although that's referring to headline rather than underlying CPI.

While not an upside surprise, it still may not be good news for mortgage holders - the RBA is forecasting prices to pick up again through 2026 while wage growth moderates but remains above target inflation levels, which could point towards further cash rate hikes.

Many economists feel the RBA are unlikely to act at the next monetary policy meeting in March, but the wage data will do little to dissuade the popular view that the May decision is likely to be a hike.

Public sector wage growth still well above private

For the fourth consecutive quarter, public sector wages grew faster than the private sector.

Government employees saw their earnings increase by an average of 4% through the year, compared to 3.4% for the private sector.

ABS head of price statistics Michelle Marquardt says this was due to new state public sector agreements that delivered "multiple pay rises" in 2025.

"Multiple pay rises occurred when agreements included backdated increases that took effect soon after the agreement was finalised, and a further scheduled rise was received later in the year," she said.

While private sector wage growth is down significantly from the highs of 2023, public wages are growing at almost the same rate.

This might be used as more evidence by those suggesting that Government spending has been a major contributor to keeping inflation high.

Are grocery prices back under control?

For many Australians it's at Coles or Woolworths where inflation is most immediately apparent.

Food and non-alcoholic beverages have been a big contributor to increases in the CPI over the past few years, and when prices go up by more than wages it suggests groceries are becoming less affordable.

In seasonally adjusted terms, food and non-alcoholic beverages became 3.5% more expensive in 2025, which while still above wage growth is a far smaller gap than in previous years - throughout 2022 food inflation was over 9% while wages increased by just 3.6%.

The Savings.com.au Grocery Price Index also suggests that grocery price inflation is less severe, the index rising 2.2% in 2025 compared to over 6% throughout 2024.