Public sector wages have grown at a faster pace than private sector wages for the fourth consecutive quarter, according to EY senior economist Paula Gadsby. The wage price index has increased, but for the first time since September 2023, it has risen at a rate slower than inflation. This divergence highlights contrasting trends in different sectors of the Australian economy.
In annual terms, public sector wages experienced a growth of 4.0 per cent, an increase from 3.9 per cent in the September quarter. This represents the highest rate of growth since the June quarter of 2024. According to Gadsby, this surge is attributable to new state public sector agreements that included backdated wage increases throughout 2025.
The wage price index for the December quarter showed an increase of 0.8 per cent, resulting in a 3.4 per cent rise over the entire year. The primary driver for the quarterly increase was wage growth within the health care and social assistance industry. “The wage price index has trended down from its peak of 4.3 per cent at the end of 2023, but broader measures of labour costs paid by employers continue to increase at unsustainable levels. This reflects tightness in the labour market and weak labour productivity growth,” Gadsby said.
Gadsby anticipates further action from the Reserve Bank in response to inflationary pressures. “The minutes of the February Reserve Bank Monetary Board meeting noted high unit labour costs are contributing to concerns about inflation. We expect the Reserve Bank to increase interest rates further, most likely in the first half of this year to combat rising inflation and turnaround the fall in real wages.”
