Pay growth expectations for the next 12 months have dropped to their lowest level this year and below the CPI inflation level, the Australian HR Institute (AHRI) latest survey shows.

AHRI’s Quarterly Work Outlook report for the December quarter reveals the mean basic pay increase in organisations (excluding bonuses) is expected to be 2.7% for the year to October 2025. This is down from 3.8% for the 12 months to July 2025 and lower than the CPI inflation at 2.8% in the 12 months to September.

An easing of recruitment difficulties is believed to be one of the key reasons for the moderation in wage pressures, with the proportion of organisations reporting recruitment difficulties dropping to 30% in the December quarter, down from 39% in the September quarter.

The AHRI Net Employment Intentions Index, which measures the difference between the proportion of employers that expect to increase staff levels and those that expect to decrease staff levels, rose to +44 in the December quarter. This represents the second highest figure for net employment intentions since the survey began in the June quarter of 2023.

Close to half (47%) of organisations intend to increase staff levels in the December quarter, compared with 3% that anticipate reducing the size of their workforce.

The turnover rate for the 12 months up to the end of September 2024 was 16%, up 1% from the previous quarter, indicating ongoing challenges in retaining talent despite a softening labour market. Almost one in three (30%) organisations reported turnover rates of 20% or more, up from 27% in the previous quarter.

AHRI CEO, Sarah McCann-Bartlett said the wage intentions data adds to further evidence that the surge in wage growth over the past couple of years may have peaked.

“This may help ease concerns around the gap between low productivity and relatively strong wage growth, which has been of concern to both employers and policymakers,” she said.

However, a drop in pay increase expectations, combined with redundancy activity taking place within some organisations, could lead to engagement challenges for managers and HR practitioners.

“With CPI inflation at 2.8% in the 12 months to September, many employers will not be offering inflation-matching pay increases to workers who continue to be weighed down by rising living costs and high levels of debt,” McCann-Bartlett said.

“These challenges could be compounded among the many organisations that are reorganising their workplaces for future challenges including digitisation, automation and AI.”

McCann-Bartlett also advised that organisations concerned about high employee turnover should consider if they need to invest more in people management and training.

“Only 28% of employers said they invest in leadership and management capability to improve psychosocial safety. This suggests that there is ample scope for Australian workplaces to improve in this area given the main factors behind the rising psychosocial claims reported in this survey are all connected with the quality of people management,” she said.