Today’s wage price index figures showed wages grew by 3.5% over the past year. Given Australia’s inflation (the CPI) increased just 2.8% in the same period that might have you thinking that workers are doing better now than they were a year ago.

But such thinking ignores that the official CPI does not count mortgage costs. As a result, one of the most significant costs that households experience is excluded from talk of inflation.

This means that the CPI is not really the best measure of the cost of living. To remedy this failure, the ABS also measures cost of living indexes for different household . Because people have different spending habits dependent upon whether they have a job, are retired on the age pension, are a “self-funded” retire or on a government support like Jobseeker, the ABS constructs different cost of living indexes for each household type.

Because interest rates rose over the past year, the cost of living measures for “employee households” rose 4.7% on the past year. That is significantly more than the 3.5% average wage rise and well above the 2.8% CPI increase.

This means that the Reserve Bank’s efforts to reduce inflation through higher interest rates are actually causing increases in the cost of living – and also big falls in workers’ ability to buy things with their wage.

The impact of the increased interest rates is made clear when we compare the real wage of someone on  around the average full-time wage of $90,000 in September 2021.

Since then, the increase in prices has meant that the $90,000 wage, even with the average wage rises over the past 3 years now is only worth $86,009 – a nearly $4,000 drop in the ability to buy things.

But when we include mortgage repayments and use the employee cost of living measure, the fall is much more severe. That person on $90,000 now has a wage that is the equivalent of just $82,080.

That loss of almost $8,000 in purchasing power is the biggest fall in the post-WWII era, and unless we see strong wage growth, will take more than a decade to recover.

The first step however is for the RBA to stop causing more needless pain. It should cut rates at its next meeting.

Wages are not growing out of control, indeed growth is slowing dramatically.

Workers were hurt by the rise in prices due to the company profit’s and have been made to carry the burden of the so-called cure of higher interest rates.