How inflation and rising costs impact HR

Executive summary

Australia is facing the highest inflation rate in two decades. This puts pressure on employers to provide inflation-based salary increases or risk losing talented employees. In this article, find out:

  • How rising inflation rates impact HR
  • The types of non-financial incentives you can offer to increase employee loyalty
  • How HR analytics can help you retain employees in a tough economic climate


How inflation and rising costs impact HR 

Australia’s inflation rate has just hit 6.1% – the highest in more than 20 years. To keep up with the rising cost of living, workers are likely to ask for higher salaries.

Wage inflation puts businesses in a bind. On the one hand, it affects a company’s profitability – even though Australia’s wage growth currently stands at 2.6%, well below the inflation rate. On the other hand, if a company doesn’t provide inflation-based salary increases, employees might suffer financial stress, which could affect their job performance.

Let’s look at how inflation impacts HR and what you can do to minimise the adverse effects on employees.

  1. Higher salary increases

Inflation and wages are linked. When inflation rises, companies are under pressure to increase workers’ salaries. But that, in turn, means companies may raise prices of their goods and services. This can lead to a wage-price spiral that pushes inflation and wages even higher, that puts businesses in a bind. Raising salaries too much could hurt your bottom line and contribute to ever-worsening inflation.

If you don’t raise salaries enough, some team members might start looking for another job.

While salary increases can keep employees happy, loyalty to a company isn’t only based on compensation.

To keep employees loyal, find out what else, besides money, they value. For some, it might be a clearly defined career path; for others, it might be training and education opportunities. The more non-financial incentives you offer, the happier they’ll be.

  1. More resignations

As inflation increases, your employees have to pay higher transport, lunch and childcare costs. Some may consider changing jobs if it will help lower work-related expenses.

The obvious way to solve this problem is to give inflation-linked raises. But not all companies can afford a higher wage bill. If you’re in that position, there might be other effective tactics you can use, such as:

  • Switching to a hybrid work model that allows employees to work remotely. Working from home a few days a week can help them save on food, fuel and childcare costs.
  • Awarding performance bonuses. If you can’t afford across-the-board salary increases, perhaps you can afford to reward your top performers with a generous bonus.

    1. Smaller budgets

Rising inflation leads to budget cuts. This may affect your recruitment and retention plans or force you to reduce the headcount.

To minimise disruption, look for low-impact ways to reduce costs.

For example, if you fill more roles internally, there will be less pressure to retrench staff. If you find ways to reduce the quit rate, there will be less need to run expensive hiring processes. If you outsource certain tasks, there will again be less need to hire new people.

Use HR data to guide you through this challenging period
Agile HR Analytics - Salary Analysis
Agile HR Analytics (Built on Microsoft Power BI) Making the right HR decisions during a period of economic disruption is tough if you’re working blindly. So let your HR data be your guide.

Agile HR Analytics is a comprehensive HR data analytics software that can give you current and historical statistics on:
  • Recruitment
  • Salaries
  • Employee performance
  • Training
  • Employee turnover rates

You’ll be able to track salary data, bonuses, employee training, absenteeism, employee turnover and more.

With our easy-view dashboards, you can see what your total wage bill and average salary per employee are at glance. You can measure your salary data against market averages and inflationary increases to see if your projected pay increases are fair in the current economic climate.

HR analytics can also help you spot worrying trends in employee retention. For example, are you losing talent because they are looking for better prospects elsewhere? With smart HR analytics software, you can predict employee attrition and put a plan in place to retain more of your top talent.

predict employee attrition and put a plan in place to retain more of your top talent.

Even absenteeism rates can tell a story. If you’ve noticed a spike in absenteeism, employees could be resorting to calling in sick more often to save on fuel costs.

Your HR data can reveal a lot. With intelligent HR software like Agile HR Analytics, you’ll gain a deeper understanding of how economic pressures are impacting your organisation. Based on what it reveals, you can adjust your HR strategy to retain, rather than lose, employees.

For a free demo, contact Agile HR Analytics by emailing or fill in this contact form.

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