Australia’s High Wage Growth Reinforce RBA’s Inflation Challenge

Swati Pandey

Wed, February 18, 2026 at 9:36 AM GMT+9 2 min read

Bloomberg

(Bloomberg) – Australia’s annual wage growth remained elevated last quarter, highlighting ongoing labor market tightness and reinforcing the inflation challenge facing the Reserve Bank after this month’s interest-rate hike.

The Wage Price Index advanced an annual 3.4% in the three months through December, matching economists’ estimate, Australian Bureau of Statistics data showed Wednesday. On a quarterly basis, it grew 0.8%. Public sector wages rose at a faster annual pace than the private sector for a fourth consecutive quarter, the report showed.

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“Strong growth in public sector wages for 2025 was due to new state public sector agreements that delivered multiple pay rises over the course of the year,” said Michelle Marquardt, ABS head of prices statistics.

The data comes after the RBA became the first monetary authority in the world to hike interest rates this year, citing persistent inflation, demand running up against supply constraints and still-accommodative financial conditions. In minutes of its Feb. 2-3 meeting, the central bank noted that unit labor costs, which take wage growth and productivity growth into account, have remained elevated suggesting the labor market “remained a little bit tight.”

The RBA is closely monitoring the price-setting behavior of firms with the unemployment rate still very low at 4.1%, inflation overshooting its 2-3% target band and consumer spending proving stronger than predicted. That has led Governor Michele Bullock to signal that another rate increase is still possible.

Money-market pricing suggests the RBA will hike again in May after parsing a comprehensive first-quarter inflation report.

The central bank has predicted unemployment would inch up slowly to 4.3% in December, from 4.1% at the end of 2025 and rise further to 4.5% by end-2027. Wages growth is expected to ease to 3.1% and stay there for the next two years.

Economists believe wage growth of around 3% is consistent with the central bank meeting its inflation target, given weak productivity growth.

Before the RBA’s March 16-17 meeting, policymakers will also receive jobs data for January, due Thursday at 11.30 am Sydney time, followed by the fourth-quarter gross domestic product report early next month.

Wednesday’s data also showed:

Private sector wages grew 3.4% in the year through December, while public sector wages climbed 4%

Annual public sector wage growth exceeded the 2.8% recorded at the same time last year

Health care and social assistance made the greatest contribution to quarterly wage growth

 






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