The reckoning

Real wages — wages adjusted for inflation — fell approximately 5 per cent from 2021 by the RBA’s own measurement. They remain around their 2023 trough. For a worker who earned A$80,000 in December 2020, this represents earning approximately A$4,740 less per year in purchasing power terms. The cumulative three-year real wage loss is approximately A$10,000 for this worker.

Nominal wages grew during this period. They grew slower than inflation for most of 2022–23. When they caught up — when wage growth finally began to exceed the now-falling inflation rate — the real wage level had already been reduced. Catching up with a lower inflation rate is not the same as recovering the lost purchasing power.

The Australia Institute calculated that workers who received average annual wage increases over the five years to early 2026 had endured cumulative real wage cuts of approximately 2.57 per cent. For a worker earning A$90,000 in December 2020: earning approximately A$2,780 less per year in real terms.

The rate cycle did not just hurt existing mortgage holders. It damaged the structural conditions of Australian housing for years.

Higher interest rates reduced the viability of new residential construction. Fewer homes were built. Australia’s housing shortage — already severe before 2022 — deepened during the rate cycle. The shortage that predated inflation was worsened by the response to it.

First home buyers who had saved deposits found their purchasing power reduced by 35 to 40 per cent by the rate rises. Some gave up on home ownership. Those who bought at the bottom of the market — when rates were at their peak — paid the highest possible price in debt servicing costs for their housing.

Real household disposable incomes were not expected to return to December 2019 levels until 2027. For many Australians, the ground lost during the inflation episode will take a decade to recover.

The structural conditions that contributed to the inflation episode and that determined who bore the adjustment cost are largely unchanged.

The supermarket oligopoly: Woolworths (38%) and Coles (29%) still control 67 per cent of grocery sales. EBIT margins remain among the highest globally. Woolworths and Coles shares surged on the day the ACCC’s report was released. The structural conditions for the next supply-shock margin expansion are intact.

The fossil fuel subsidy: A$14.9 billion annually, rising. No windfall tax was introduced during the inflation episode. No windfall tax mechanism exists for the next one.

The banking oligopoly: four major banks, four pillars policy intact. Bank combined profits A$15.5 billion in H1 FY25. The asymmetric pass-through mechanism is unchanged.

The policy architecture: no standing mechanism for windfall taxes, no mandatory corporate price transparency during supply shocks, no pre-approved household relief packages for the next energy price spike.

Australia will face another supply shock. Supply shocks are not one-off events. Energy price spikes, pandemic-related supply chain disruption, geopolitical trade disruption — these are recurring features of a globalised economy.

In February 2026, the RBA raised rates again. Inflation was re-accelerating, partly because government electricity rebates were removed. Real wages were projected to fall further. The cycle threatened to begin again.

The lesson of the 2022–23 episode — that supply-side inflation requires supply-side tools, and that placing the entire burden on monetary policy transfers wealth from borrowers to banks while leaving the structural causes of inflation intact — has not been institutionalised. There is no policy architecture in place to respond to the next supply shock differently.

Article 6 of this series documented the tools other OECD countries used that Australia did not. For the next supply shock, the policy toolkit that would more equitably share the adjustment cost:

A standing trigger mechanism for windfall taxes on corporate sectors earning excess profits from supply shocks — defined as profits more than a specified percentage above the preceding four-year average. Revenue directed to household relief.

Mandatory real-time price transparency for oligopolistic food retail — allowing the ACCC to identify margin expansion as it occurs, not eighteen months after the peak.

Pre-approved household energy relief packages, automatically triggered when energy prices exceed a threshold — the French tariff shield model.

A structural review of bank deposit rate pass-through — ensuring that when the RBA cuts rates, banks reduce mortgage rates and raise deposit rates at symmetrical speed.