Australians face decade-long look ahead to wages to get well from cost-of-living disaster | USAEMALL.com

Australia’s brutal cost-of-living pressures are tipped to continue until at least 2032 when purchasing power finally gets back to pre-covid levels.

In a grim forecast, AMP chief economist Shane Oliver explained to NewsWire the post-Covid surge in inflation means it will now take more than a decade for workers to catch up.

“If wages continue to grow at their current pace and inflation stays in the RBA target zone we wouldn’t get back to wages having the same purchasing power in 2020 until 2032,” he said.

This is based on wage growth of about 3.4 per cent and inflation falling back within the Reserve Bank of Australia’s target range of between 2 to 3 per cent inflation growth.

In other words, Dr Oliver says the average 25-year-old worker in 2020 won’t have the same purchasing power until they turn 37.

The long winded cost-of-living pressures comes as Australia’s inflation rate peaked at 7.8 per cent year-on-year in December 2022 white wages grew by 3.3 per cent over the same time period.

“It takes a long time to make up that gap,” Dr Oliver said.

“We can have reasonable expectations that real wage growth will return or remain but we have to wait a while to get back to where we were in 2020.

“The cost-of-living problem will take a while to go away unless there’s a miracle of some sort.”

Dr Oliver says as time goes on and wages gradually pick up the pressures on households will slowly subside.

Australian economy hits it ‘speed limit’

Australia’s inflation rate is heading in the wrong direction.

Figures released by the Australian Bureau of Statistics show the inflation rate for October remains unchanged at 0.0 per cent.

However, due to the -0.2 per cent figure in October last year, Australia’s yearly inflation rate has now jumped to 3.8 per cent.

Meanwhile, the all-important trimmed mean inflation rate – which the RBA measures as it excludes volatile items such as fuel – rose to 3.3 per cent for the year.

HSBC chief economist Paul Bloxham says rising inflation means the next interest rate move may be up.

“A lot has happened quite quickly – as is often the case at turning points in the cycle,” he said.

“Six weeks ago, the market was priced for cuts for the RBA – one cut by quarter one 2026, and some chance of a further cut by quarter three 2026. Now, the market has flipped in the opposite direction, with the first hike priced by quarter three 2026,” he said.

NED-9108-Monthly-Inflation-Indicator

Mr Bloxham says the Australian economy can’t keep growing without picking up inflation.

“For us, this has reset the assessment about where the economy is in terms of the balance of demand and supply,” he said.

“It suggests to us that growth is already running ahead of the economy’s potential growth rate, or its ‘speed limit’.”

AMP disagrees with deputy chief economist Diana Mousina calling talks of interest rate rises as “premature”.

“Inflation at just over three per cent is not a problem for the economy, there are more downside than upside risks to the economy, job ads are flatlining, rather than accelerating, public sector spending will slow and private sector growth is not-broad based,” she said.

The Reserve Bank has cut interest rates three times over the calendar year by a total of 75 basis points.

While inflation was in the RBA’s 2 to 3 per cent target band in the middle of 2025 it has since risen, mainly on the unwinding of state and federal energy rebates.

Despite this bounce in inflation Ms Mousina says it normal for inflation to be outside of the target range and does not believe the central bank will be in a rush to lift rates.

“The RBA started inflation targeting in 1993. Since then, headline inflation has been in the 2-3 per cent target 35 per cent of the time and trimmed mean has been in target 56 per cent of the time,” she said.

AMP are still calling there could be further rate relief for households in mid 2026.

RBA governor Michele Bullock has repeatedly stated the importance of keeping inflation low as it has a real impact on Australian households.

“I know mortgage holders want more (rate cuts), but it’s also important we make sure we keep inflation under control because ultimately that’s also what impacts peoples’ living standards. So it’s really important we get that right too,” she said.

Ms Bullock says the RBA will remain data dependent when it comes to any interest rate decision.