Pay growth drops to lowest level this year, below CPI inflation

In bad news for Aussie employees, a sharp fall in recruitment difficulties is believed to be a key reason for moderation in wage growth, as it falls to its lowest level this year.

According to the Australian HR Institute’s (AHRI) latest survey, pay growth expectations for the next 12 months have dropped to their lowest level this year and below the consumer price index (CPI) inflation level.

AHRI’s Quarterly Work Outlook report (December quarter) reveals that the mean basic pay increase in organisations is expected to be 2.7 per cent for the year to October 2025. This data highlights that this is down from 3.8 per cent for the 12 months to July 2025 and is now lower than the CPI inflation rate, which resides at 2.8 per cent in the 12 months to September.

Easing recruitment difficulties is believed to be one of the key reasons for this moderation in wage pressures, with a wide range of organisations reporting recruitment difficulties dropping 30 per cent in the December quarter – down from 39 per cent in the September quarter.

AHRI chief executive Sarah McCann-Bartlett said the wage intentions data adds to further evidence that the surge in wage growth over the past couple of years may have peaked.

“This may help ease concerns around the gap between low productivity and relatively strong wage growth, which has been of concern to both employers and policymakers,” McCann-Bartlett said.

“With CPI inflation at 2.8 per cent in the 12 months to September, many employers will not be offering inflation-matching pay increases to workers who continue to be weighed down by rising living costs and high levels of debt.”

“This could represent an engagement challenge for HR practitioners and line managers. These challenges could be compounded among the many organisations that are reorganising their workplaces for future challenges, including digitisation, automation and AI.”

The survey also examined absence management as well as psychosocial hazards. According to the data, 80 per cent of organisations rate themselves as managing psychosocial risks “very effectively” or “somewhat effectively”.

This, however, contradicts data that shows that in the 12 months to September 2024, thirty-eight per cent of employers reported that these claims and complaints had increased, while 13 per cent said they had decreased compared to the preceding year.

Common causes of claims regarding psychosocial hazards over the last two financial years were job demands (30 per cent) and conflict or poor workplace relations (23 per cent).

In terms of absence management, the number of organisations citing stress as a reason for unscheduled absences rose from 42 per cent to 50 per cent over the last year. To no surprise, for the second consecutive year, cost-of-living pressures were cited as the main cause of stress.

“Only 28 per cent of employers said they invest in leadership and management capability to improve psychosocial safety. This suggests that there is ample scope for Australian workplaces to improve in this area given the main factors behind the rising psychosocial claims reported in this survey are all connected with the quality of people management,” McCann-Bartlett said.

“Effective leadership and management can enhance the psychological wellbeing of workers and improve productivity through improved work performance, lower absenteeism and better retention rates.”