The pay rise needed to keep pace with inflation

There was a bit of good news recently for Aussie workers – wages grew by 4.1% over the year to the June 2024 quarter. This is in line with previous quarters since September 2023 and is a far cry from the 15-year low of 1.3% in the December quarter of 2020.

Although inflation has eased since the eight year high of 7.8% in the December quarter of 2022, many Australians are still feeling the impacts of the rising cost of living. Fortunately, this 4.1% wage growth is marginally higher than the 3.8% Consumer Price Index (CPI) figure for the same period. The Consumer Price Index measures the change in prices of common goods and services, such as food and beverages, clothing and footwear, housing costs etc.

According to Canstar’s calculations, someone on an average Australian salary of $77,006.80 would have an income shortfall of $2,926 a year, if their wage didn’t grow at all.

The Reserve Bank of Australia (RBA) is forecasting that CPI has peaked at 3.8% and will remain under 3.7% till the end of 2026, likely sitting around the target range of 2%-3%. This will hopefully come as a relief to everyday Aussies, but would rely on wage growth to remain above the level of CPI.

Related: Interest rate forecast and predictions

How much does my salary need to increase to keep up with inflation?

If you have not had a salary review recently, it might be time to start thinking about asking for a pay rise. The table below shows the pay rise you’ll need to keep pace with inflation, based on the RBA’s forecast of 3.7%.

As you can see, if you’re earning $60,000 a year you would need a pay rise of $2,220 just to keep up with the cost of living. If you’re on $90,000 then you’ll need an extra $3,330.

The pay rise needed to keep pace with inflation

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Pay rise needed based on 3.7% CPI inflation.

How hard is it to secure a pay rise in the current market?

If you are thinking about asking for a pay rise, the current economic climate could potentially be in your favour. “Given the extent of today’s skills shortage, employers are far more willing to review pay today than they have been in several years,” said former Managing Director of Hays in Australia and New Zealand, Nick Deligiannis. “However, every employer has a limit to the extent of salary increases they can offer. The key is to be realistic.”

Research by recruitment agency Robert Half shows that most employers are open to offering employees more money. With businesses striving to retain their staff, the latest Robert Half Salary Guide shows that 96% of employers planned to give pay rises to their employees this year.

Top tips for asking for a pay rise

If you are planning on asking for a pay rise, it’s important to go in prepared. Here are a few tips:

Put a case together

The first step is to evaluate your own performance by preparing a business case that outlines your skills, the value of your contributions and any positive feedback you have received along the way. You may need to explain clearly – using concrete examples and/or performance-based results – why it makes sense to pay you more than what you’re currently receiving. With that, it’s important to think about what you’ve achieved since your last pay rise and what you plan to do in the future. This means considering what makes you particularly valuable as an employee – what skills do you bring and what do they add to the workplace?

Do your research

While most Australian employers are willing to offer pay rises, it’s important to do your research and have a good idea of what the current salary ranges are for similar roles. This can be done by benchmarking yourself against the market and can help you understand what other employers are paying for the skills and experience you have. There are a number of salary guides online that can give you a good idea of typical salaries for your role.

Have a plan – but be prepared to negotiate

It’s important to have a clear idea of how much extra money you intend to ask for – is it just enough to keep up with inflation or more? It’s not a bad idea to ask for slightly more than the amount you want when negotiating.

Your boss may want to negotiate the value of your salary increase, so it’s important to remember your justifications for asking for a pay rise in the first place. But also consider how much you are willing to compromise – it can help to have a salary range in mind, with a top and a bottom amount that you think would be fair.

Be professional

When you talk to your employer, it’s important to be professional and calm when presenting the evidence you’ve gathered. If you’re feeling nervous, having your evidence written down on paper will provide you with notes to keep the meeting on track. Remaining respectful and professional is important in any business interaction and you can also benefit from approaching the conversation with confidence and positivity, especially if you have the figures and achievements to back up your request.

Be patient

Due to the logistics of pay rises, you shouldn’t expect an answer straight away. Pay rises are often subject to a review of the workplace’s budget, a conversation with HR and then a draft of the necessary documentation, before a potential pay rise becomes official.

Have a fallback position

It doesn’t hurt to have a back-up position or to start interviewing for other positions in case your employer declines your request, especially if the pay rise is necessary to your future financial plans. If you intend on staying at your current workplace, ask your employer what it would take to get a raise in the future, what specific actions based on skills and performance would be needed to merit one, and set a future date to review your performance.

Money might not be the only thing that’s important when negotiating, as you could ask if there are any additional benefits your employer could offer.

If your current employer is steadfast or reluctant to negotiate at all, you might also consider exploring new opportunities. Due to Australia’s current skills-short market, looking for a new job could land you a higher salary or better working conditions, as some businesses are willing to pay more to secure experienced workers.

What about non-cash perks?

The reality is your request for a pay rise might get knocked back, but if you really enjoy working for your current employer you might consider asking for other perks instead. Although salary is often what is valued most due to the rising cost of living, there are other benefits which you can negotiate, particularly around flexibility – which is often sought-after. Flexibility can include the ability to work from home/remotely, flexible hours, flexible leave options/extended time off and extended parental leave.

It might not be the same as extra cash in your pay each week but flexibility can help you save time and even money. For example, working from home can save you on transport costs and you are also less likely to be tempted to buy your lunch. You may also consider asking for professional development opportunities, such as training and the opportunity to attend conferences and seminars related to your field.

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