A September speech title from Monetary Policy Board member Iain Ross AO poses the question directly, and the RBA's own forecasts and minutes offer a way to judge how close Australia is to a wage-price spiral.

One week before the cash rate target was raised to 4.60 per cent, a member of the body that made that decision put a pointed question on the public record. On 22 September 2026, in Melbourne, Iain Ross AO, a member of the Monetary Policy Board, delivered a speech titled "A Wage-price Spiral: What are the Chances?"

The phrase "wage-price spiral" is one of the most familiar in economics, and one of the most unwelcome for central banks. This explainer sets out what the term means, then looks at what the RBA's published forecasts, minutes and statements say about wages, prices and the risk of the two feeding off each other.

What a wage-price spiral is

In plain terms, a wage-price spiral describes a loop in which rising prices and rising wages push each other higher. It usually runs something like this:

  • Prices rise, eroding what workers' pay can buy.
  • Workers seek, and receive, larger pay increases to catch up.
  • Businesses facing higher labour costs raise their prices further to protect margins.
  • The cycle repeats, and inflation becomes self-sustaining.

The concern for a central bank is not a single round of higher prices or a one-off pay adjustment. It is the possibility that expectations shift, so that households and businesses come to assume high inflation will continue and set wages and prices accordingly. Once that happens, inflation can become much harder to bring down.

That is why the Board's statement on 29 September included this line: "The Board remains focused on ensuring that high inflation does not become embedded."

Where prices stand

Inflation in Australia is above the RBA's 2–3 per cent target. Monthly headline CPI was 4.0 per cent over the year to August 2026. For the June quarter, headline CPI was 3.9 per cent, while the trimmed mean, the RBA's key measure of underlying inflation, was 3.6 per cent. The trimmed mean excludes the largest price rises and falls each period, so it gives a better sense of the broad trend than the headline figure.

Governor Michele Bullock noted at her media conference that inflation has been outside the target for about six years, apart from a brief return in 2025. She was blunt about the cause: "Inflation is too high and has been driven by domestic capacity pressures."

The minutes of the September meeting add detail. July inflation data were stronger than expected, particularly for market services, and the share of items with prices rising by more than 2½ per cent was "well above average". Staff judged that the upside surprise more likely reflected domestic capacity pressures than the pass-through of cost shocks from the Middle East conflict.

Where wages stand

On the pay side, the picture looks different. The RBA's August 2026 forecasts show the Wage Price Index growing at 3.3 per cent over the year to June 2026, and staying at 3.3 per cent through December 2026 and June 2027, before easing to 3.1 per cent by December 2027, 3.0 per cent by June 2028 and 2.9 per cent by December 2028.

A broader measure, nominal average earnings per hour in the non-farm sector, was 2.7 per cent in June 2026, forecast to rise to 3.0 per cent by December 2026 and 3.7 per cent by June 2027, then ease to 3.6, 3.4 and 3.2 per cent over the following half-years.

Those wage figures are not running away. The forecasts show the Wage Price Index growing more slowly than headline CPI in 2026, and only moving ahead of headline inflation from 2027 as inflation is forecast to ease.

The productivity twist and the Board's response

The most telling line in the minutes on this question concerns unit labour costs, which measure labour costs for each unit of output. The minutes say unit labour cost growth was above what is consistent with the inflation target, but that this was driven mainly by subdued productivity growth rather than strong nominal wages.

That distinction matters. In a classic spiral, workers win ever-larger pay rises. In Australia's case, according to the RBA, the issue is less that wages are surging and more that output per hour is not growing. The August forecasts have labour productivity falling 0.5 per cent over the year to June 2026 and over the year to December 2026, before modest growth of 0.4 per cent by mid-2027 and 0.6 to 0.7 per cent after that.

Bullock was direct on the subject: "The bottom line is that productivity is doing nothing." She also noted the limits of her tools: "monetary policy can't do anything about productivity."

The other ingredient in any spiral is expectations. In discussing global markets, the minutes note that long-term inflation expectations were broadly stable, even as global bond yields rose notably, mainly because of higher real yields.

The Board's response in September was to act. Members decided unanimously to raise the cash rate target by 25 basis points to 4.60 per cent. Bullock said: "Higher interest rates are needed to ensure inflation returns to target." She added that "high inflation hurts all Australians, especially the most vulnerable."

The minutes close with the Board saying it will do what it considers necessary, "including increasing the cash rate target further if required." Bullock declined to signal the next step: "I'm not going to give you forward guidance."

The bottom line

A wage-price spiral requires wages and prices to drive each other higher in a self-reinforcing loop. The RBA's published material shows inflation above target and spread across a well-above-average share of items, but wage growth forecast to ease gradually rather than accelerate, with weak productivity identified as the main driver of high unit labour cost growth. The Board's stated aim is to stop high inflation becoming embedded, and its minutes leave open further increases if required.