Should you ask for a pay rise as the cost of living increases in 2021?

People in a meeting, discussing pay rises.

If you feel like your grocery bill has gone up a few dollars recently, you’re not imagining things. The cost of living has risen by 0.9% in the last 3 months in Australia.

But this doesn’t mean you’ll automatically see a comparable increase in your pay packet. If you’re worried about keeping your budget under control in 2021, read on for more details on consumer price hikes and how to ask for a pay rise.

The cost of living in Australia

The consumer price index (CPI) is a measure of the cost of goods and services in Australia, which is a reflection on the overall cost of living (although not an exact measurement).

The latest ABS data shows CPI rose by 0.9% in the December quarter. While this didn’t match the September increase of 1.6%, it did top forecasted growth by 2 basis points.

Increases in the cost of tobacco (10.9%) and domestic holiday travel and accommodation (6.3%) were driving factors, as was the return of out-of-pocket childcare costs to pre-COVID levels (up 37.7%). 

A record-breaking 7.5% decrease in electricity prices counteracted some of this, particularly with Western Australians receiving a $600 energy credit in October.

How to ask for a pay rise

A slight rise in CPI isn’t necessarily a bad thing for the everyday Aussie, especially as the economy shifts out of the unprecedented economic conditions of 2020. 

The problem is if wage growth remains below its stagnant pre-COVID state of 2-3% (as Deloitte's business outlook report suggests it will until early 2024) then balancing your budget could become more difficult.

A Mozo survey conducted in mid-2020 found nearly a quarter of Australians would consider asking for a pay rise to meet rising living costs, with one in five also basing the request on their performance. In both cases, men were significantly more likely to do so.  

This is no surprise to careers coach Kater Boorer. She’s the founder of peer-to-peer networking and advocacy group Young Professional Women Australia and works to help women reach their career goals. She joined Mozo’s podcast, The Finance Burrito, to talk through the process of pay negotiations.

“In my experience, women are less likely than men to quote a number that reflects their true value [in an interview], and one in two is underpaid by $20,000 or more,” Boorer says.

When considering negotiating a pay rise in a difficult economic climate, Boorer’s advice is to get started as soon as possible and know how to negotiate a ‘no’. 

“Remuneration conversations need to happen three to six months before decisions are made, because that’s when budgets are being done. Even if you get a ‘no’, it’s a marker in the sand. So, when you come back to the conversation in six or 12 months time, [employers] are less likely to say no twice in a row,” she says.

“Or, if you can’t get a pay rise right now, can you negotiate four days on your existing salary, or perhaps get a title change or training? There’s the opportunity to get creative with the way we do these things.” 

Salary transparency: Why you should talk about your pay 

Whether you’re chatting with your best mate or your colleagues, Boorer says everyone can benefit from being more open about their income. 

She stresses company politics should be kept in mind – be careful talking about pay if it’s likely to get you fired – but also that employees should ask why organisations don’t want salaries to be discussed.  

“Data shows us it’s because the more transparency we have around remuneration, the more salaries increase. All of a sudden people go, ‘Oh you get paid that? Then so should I’. It’s like an open market, and the demand and supply forces equalise in terms of pricing,” Boorer says.

This information should ideally give groups experiencing pay inequality a more powerful voice in pay negotiations. Boorer says open dialogues around pay foster greater coworker support as discrepancies are scrutinised publicly.

However, there are other social elements to consider in implementing this. If strict procedures around how salaries are determined and communicated aren’t set in place from the get-go, perceptions of inequity and resentment may grow in workplaces. So, setting standards should be a big part of the salary transparency process.

Once you’ve got your salary sorted, find the best account to stash your savings using Mozo’s savings account comparison tool.