What is the average salary increase?
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What is the average salary increase?

Most salaries are tied to inflation.

There is a section in just about every Employment Contract that links Base Salary to the Consumer Price Index (CPI), which is a measure of inflation.

It will read something like this:

“You shall receive as an annual inflation adjustment to your Base Salary each year an amount not less than the annual increase in the Consumer Price Index (CPI)”.

That means that at any particular time, the average salary increase is roughly equal to the level of inflation. So we need to look for some information on the average inflation rate.

Because inflation is managed by Central Banks like the Federal Reserve in the United States, we need to look to them for hints on what the average inflation rate, and therefore salary increase, is likely to be.

Luckily, the Federal Reserve (and other Central Banks) announce this number. Since January 2012, the Federal Reserve's long-run annual inflation goal has been 2% as measured by the annual change in the price index for personal consumption expenditures.

In Australia, the Reserve Bank targets a band of 2-3% inflation.

This makes sense from your employer's perspective too. Assuming their revenues are growing at the rate of inflation, if they are consistently increasing salaries by more than the rate of inflation it will eventually eat too far into their profits.

So you can expect that over the long-run, the average salary increase is likely to be in the 2-3% range per year. Of course, by performing well in your role and making the right moves, you can do much better. But this is the average salary increase embedded in most contracts.

To improve on it, you’ll need to make moves.