The phrase "wage-price spiral" is often used loosely. An RBA board member's recent speech relied on a precise definition, and understanding it clarifies what the RBA is, and isn't, worried about.

"Wage-price spiral" is one of those economic phrases that sounds self-explanatory. Prices rise, workers demand higher pay to keep up, businesses pass those higher labour costs on as higher prices, and the cycle repeats. It is a vivid image, and it tends to surface whenever inflation stays high for a while.

But vivid images are hard to measure. To test whether a spiral is actually happening, economists need a rule that can be applied consistently to data across countries and decades. In his speech "A Wage-price Spiral: What are the Chances?", delivered at the University of Melbourne on 22 September 2026, Monetary Policy Board member Iain Ross AO drew on exactly such a rule.

The definition, piece by piece

The definition Ross used comes from an International Monetary Fund study. Under it, a wage-price spiral episode occurs when year-ended consumer price inflation and nominal wages growth increased successively for three out of four consecutive quarters.

Each part of that sentence does work.

  • Year-ended consumer price inflation is the change in consumer prices compared with the same period a year earlier. Using a year-ended measure smooths out some of the volatility in quarter-to-quarter moves.
  • Nominal wages growth is the increase in pay in dollar terms, before adjusting for inflation. A spiral is about the dollar figures chasing each other, so nominal rather than real wages is the relevant measure.
  • Increased successively means both rates are not merely high but rising. A country can have high inflation and high wages growth that are stable or falling; under this rule, that would not count.
  • Three out of four consecutive quarters sets a persistence threshold. A single quarter of both measures accelerating could be a coincidence. Requiring the pattern to show up in most quarters across a year looks for something more sustained, while allowing for one quarter that breaks the pattern.

In short, the test looks for acceleration in both prices and wages at the same time, persisting over a meaningful stretch.

Like any statistical rule, this one is a simplification. It identifies periods when prices and wages were speeding up together, which is the pattern a spiral would produce. It does not, on its own, prove which way causation runs in any given episode, or whether the acceleration was driven by an external shock that pushed both measures higher at once.

That is why a definition like this is best seen as a way of flagging episodes worth examining, rather than a final verdict. It is also why Ross's speech did not rest on the definition alone. He paired the historical record with an examination of Australia's wage-setting institutions, which determine how easily higher prices can feed into pay and back again.

What the history shows

Applying the rule, the IMF study identified 79 wage-price spiral episodes in 31 advanced economies between the 1960s and 2022. It also found fewer episodes since the 1980s.

That long sweep matters. It means spirals are not merely theoretical: they have occurred many times in developed economies. But the declining frequency suggests that the conditions which once made them more common have changed in many places.

Australia's own history offers a clear example of the older pattern. Ross noted that in the 1970s inflation reached over 16%, and male average weekly earnings growth reached 25% in 1974. Quarterly wage indexation, introduced from early 1975, linked wages to past inflation. The doctrine of "comparative wage justice" meant that wage rises in one sector transmitted to others. Union membership was slightly more than half of employees in the late 1970s.

Those arrangements created a strong mechanical link between price increases and subsequent pay rises across the economy.

Applying the lens to Australia now

Today's institutions look very different, according to Ross. Union membership is about 13% of employees. Only around 10% of enterprise-agreement employees renegotiate each year, and the average nominal term of agreements lodged over the year to March 2026 was three years. Working days lost to industrial disputes have remained at very low levels since around 2012.

When most employees are on agreements that run for several years, and only a small share renegotiate in any given year, it is harder for wages across the economy to accelerate quarter after quarter in response to recent inflation. That is the practical reason the three-out-of-four test becomes a tougher bar to clear under current arrangements.

The labour market is also loosening: Ross cited an unemployment rate of 4.5% in July 2026, up from 4.2% a year earlier. He concluded that there is little evidence of a wage-price spiral risk under current institutions.

Governor Michele Bullock put the point more bluntly at her 29 September media conference, after the Board lifted the cash rate target to 4.60%: "There is no wage price spiral going on in Australia."

Why the RBA still raised rates

If wages and prices are not spiralling, why is the RBA still tightening? Because the absence of a spiral does not mean inflation is under control. Headline inflation was 4.0% over the year to August on the monthly CPI indicator, and Bullock said underlying inflation has "been about 3.5 per cent for the past six months", both above the 2–3% target.

The Board's statement pointed to stronger-than-expected inflation outcomes, cost pressures on firms, higher global energy prices and "pressure on domestic capacity". It also stressed that high inflation must not become "embedded". Bullock said: "It's critical that we stop expectations for high inflation from becoming embedded".

In other words, the RBA's concern is less about a formal wage-price loop and more about the risk that persistent inflation shifts how households and businesses think about future prices, which could influence pricing and wage decisions over time.

The bottom line

The three-out-of-four test gives the idea of a wage-price spiral a precise shape: both inflation and nominal wages growth accelerating for at least three of four consecutive quarters. Using it, the IMF counted 79 episodes across 31 advanced economies since the 1960s, becoming less frequent after the 1980s.

For Australia, Ross's reading is that current wage-setting institutions make such a pattern unlikely, and the Governor says no spiral is under way. That still leaves the RBA with an inflation problem driven by other forces, which is why the Board raised rates and said it will continue to do what it considers necessary, "including increasing the cash rate target further if needed."