Wage price index up 3.3 per cent in the year to December

The wage price index rose 0.8 per cent in the December quarter, lifting annual growth to 3.3 per cent - its highest reading in 10 years.

But with headline inflation surging by 7.8 per cent late last year, real wages fell by 4.5 per cent during 2022 - the biggest such decline on record, according to Australia Institute senior economist Matt Grudnoff.

The latest wages update came two weeks after the Reserve Bank of Australia hiked the official cash rate to 3.35 per cent on concerns that price pressures were too high, with RBA governor warning of the risk of a damaging wage-price spiral if high inflation persists.

But Treasurer Jim Chalmers and Employment Minister Tony Burke dismissed such concerns in welcoming the increase in incomes.

"Wages growth isn't the problem when it comes to inflation, it's part of the solution to cost-of-living pressures," the ministers said. "There is no evidence of a wage-price spiral in our economy."

Their view was echoed by Mr Grudnoff, who accused the RBA of risking driving the economy into recession.

"This data shows fears of a 'wage-price spiral' similar to the 1970s are a speculative fantasy," he said. "To blame workers for current inflation while they experience unprecedented real wage drops and companies post surging profits is economic gaslighting of the highest order."

The December quarter wage rise was below market expectations for a 1 per cent rise and less than the 1.1 per cent gain reported by the Australian Bureau of Statistics in the September quarter.

Wage growth in the private sector eclipsed public sector pay gains in the last three months of the year and on an annual basis grew by 3.6 per cent - significantly higher than the 2.5 per cent gain among public employees. Around one in five private sector jobs recorded a pay increase in the quarter.

Around one in five private sector jobs recorded an average hourly pay increase in the quarter of 4 per cent, while the average hourly pay rise among the 29 per cent of public sector workers who scored an increase was 2.8 per cent.

Workers in the ACT secured the biggest average pay increase in the December quarter - 0.9 per cent in original terms - but annual wage growth in the territory was just 2.9 per cent, well below the national average.

In the last three months of 2022, wages grew fastest among workers in the hospitality sector but the biggest average pay increases during 2022 went to employees in wholesale, manufacturing, construction and retail.

Betashares chief economist David Bassanese said the wage growth was a "goldilocks" result that should hold no fears for the central bank.

Mr Bassanese said pay increases were low by global standards and modest, given how tight the labour market is and how high inflation.

"I would think that the RBA would take a lot of heart from this number. It is pretty benign," the economist said.

The growth in pay packets is being fueled by intense competition between employers for scarce skills and labour, handing workers significant bargaining power.

Some of the biggest gains are being made by workers in low-paid industries like cleaning, hospitality and aged care.

Last year the Fair Work Commission awarded a 5.2 per cent rise to workers on the minimum wage and announced a 15 per cent pay hike for aged care employees.

The lift in the wage price index for the December quarter is in line with Reserve Bank of Australia expectations wages will grow by 4.25 per cent by late this year.

But there is increasing evidence the labour market is starting to loosen. The unemployment rate increased 0.2 of a percentage point in January to reach 3.7 per cent and the RBA expects it to rise to 4.5 per cent in the next two years as economic activity slows and the nation's intake of migrants returns toward pre-pandemic levels.

Mr Bassanese said he expected the RBA to raise interest rates in the next two months to reach 3.85 per cent, at which point it would pause "for at least three to six months".