Chalmers admits wage growth at risk with rate rise on cards

Treasurer Jim Chalmers has failed to reassure Australians that real wage growth will continue and living standards won’t go backwards after inflation jumped, all but guaranteeing an interest rate rise next week.

Chalmers defended the government’s record on inflation – a key boast since taking power in 2022 – on ABC’s 7:30 on Wednesday night after the December inflation figures showed prices increased by a full percentage point last month, taking the annual rate to 3.8 per cent.

The treasurer said it remained to be seen whether real wage growth would continue as forecast in last year’s budget after the higher-than-expected inflation figures.

“We’ll see how, what kind of outcomes we get on wages,” Chalmers said. “Clearly when inflation is higher than we would like, that has implications for real wages. But we’ve had two years now of continuous real wages growth.”

“Obviously that’s under pressure now as we get this inflation data, which is higher than anyone would like.”

Labor spruiked its record on wages throughout the election campaign last year, with wages outpacing inflation since December 2023, following two years of prices climbing faster than Australians’ pay packets. To the end of September the quarterly wage price index had grown by 3.4 per cent over the previous 12 months compared with inflation, which had risen by 3.2 per cent.

“Under Labor more Australians are working, earning more and keeping more of what they earn,” Chalmers said in May. “Australians voted for higher wages at the election, and that’s what [inflation numbers at the time] show.”

The Reserve Bank, in its latest economic outlook, forecast annual real wage growth to be negative this year due to an expected lift in inflation and a slowdown in wages, before recovering in 2027.

Chalmers rejected suggestions that the government was willing to take credit for lower inflation but was shying away from the responsibility of a rise, by claiming that government spending was not to blame.

“I’ve said repeatedly … that I take responsibility for all aspects of my job, but more than take responsibility, we’re taking action, cutting taxes, providing cost-of-living relief, getting the budget in better nick,” he said on 7.30.

The treasurer dug in on the argument that government spending was not driving inflation – a claim AMP chief economist Shane Oliver had contradicted, saying private demand had been constrained for years and government spending was driving a lot of the factors contributing to increasing inflation.

“The increase in inflation [announced on Wednesday] was primarily driven, in fact, by less government spending – by the withdrawal of energy rebates – plus holidays, plus housing. I don’t think that any of that could be objectively attributed to government spending or the budget position,” Chalmers said.

Asked whether the budget would include bold reform, he said: “I don’t write the budget in January.”

“There’s a lot of thinking, a lot of decisions still to be taken. It will be a matter for cabinet. We take these decisions collectively in our government, and the budget will be focused on the economics, not on the politics.”

Shadow treasurer Ted O’Brien said the latest inflation figures would mean a tougher year ahead for many people.

“For hard-working Australians and the mums and dads across the country, a decline in real wages means a lower standard of living,” he said.

“This latest inflation number shows the prices will continue to be higher for longer. Interest rates are likely to increase, taxes will go up, and real wages are likely going down.”

O’Brien said the government needed to curb spending and introduce measurable fiscal rules to contain outlays.

“When the government keeps pouring more money into the economy, it is competing with households and businesses for goods and services. This pushes prices up for everybody, and it crowds out the private sector,” O’Brien said.

“The Liberal Party has been calling out the government for its wasteful spending for some time; we now have some of Australia’s leading economists publicly doing the same. Everyone from AMP through to HSBC chief economists are saying the government has to rein in its spending.”

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