Wages are set to start outpacing inflation in the first half of this year as price pressures continue to normalise, Treasury says.

While wages have been growing in nominal terms, consumer price growth has outpaced those improvements, weighing on the purchasing power of households.

Treasury officials confirmed the gap between wage price index growth and the consumer price index had been narrowing and a crossover was anticipated in the first six months of 2024.

The wage price index rose four per cent in the year ended September 2023 and was up 1.3 per cent in the third quarter. The December quarter data are due next week.

The consumer price index lifted 4.1 per cent in the year ended December and was up 0.6 per cent in the fourth quarter.

Treasury Secretary Steven Kennedy said the broad drivers of inflation were normalising and were now being led by services categories.

“We expect that services inflation has likely peaked and will moderate over the next two years,” Dr Kennedy told a Senate estimates committee hearing on Wednesday.

Treasury’s assessment of services inflation was similar to the Reserve Bank of Australia’s, he added.

The RBA has cited still-strong services inflation as a risk factor to its economic outlook and a reason to keep its options open on interest rates and reactive to incoming data.

Dr Kennedy also said global inflation was continuing to ease but the speed of moderation was slowing.

“This is not unexpected,” he said.

“The echoes of the supply side shocks are becoming smaller and economies are transitioning back towards services-leading inflation.”

This post was originally published on Michael West.