Why cost-of-living woes will probably linger for years

Sydney Morning Herald

by Clancy Yeates

February 22, 2026

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Why cost-of-living woes will probably linger for years

The recent decline in real wage growth has cast a shadow over household finances in Australia, as wages have struggled to keep pace with inflation. While Treasurer Jim Chalmers reported that wage growth reached 3.4% annually in December, this fell short of the 3.8% inflation rate, signaling a stagnation in real income. This development is particularly concerning for the Labor government, which has pledged to address the cost-of-living crisis through stronger pay rises. However, the economic picture is more nuanced than it appears. Reserve Bank Governor Michele Bullock highlighted that broader measures of household income, such as bonuses and overtime, suggest a more positive trend since the COVID-19 pandemic. These metrics indicate that real incomes have grown, despite the recent decline in wages. Additionally, data on loan repayment difficulties shows improvement, with fewer borrowers falling behind on their payments. The discrepancy between these contrasting narratives stems from differing economic indicators. While the wage price index provides a snapshot of hourly pay, it doesn’t account for factors like promotions or job changes, which are common in most careers. In contrast, the average earnings from national accounts (AENA) offers a more comprehensive view by including bonuses and other forms of compensation. This broader measure has shown stronger growth compared to the wage price index, suggesting that many households are faring better than the headline figures might imply. Despite these complexities, long-term trends reveal a concerning pattern: real wage growth in Australia has been weak for over 15 years. The combination of slow wage increases and high inflation since the COVID-19 era has significantly eroded spending power. While short-term fluctuations in data like the consumer price index capture media attention, the lasting impact of inflation on everyday costs is what truly matters

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Originally published on Sydney Morning Herald on 2/22/2026