Key Highlights

  • Firms contacted by the RBA report elevated wage expectations.
  • These expectations point to little easing in wage growth over the next year.
  • The finding sits behind the Bank's higher wage forecasts.
  • The RBA has not published a detailed breakdown by industry or region.

Official statistics tell the Reserve Bank of Australia where the economy has been. Its Business liaison is one of the ways it tries to see where the economy is heading. In the November 2026 Statement on Monetary Policy, that liaison delivered a message the Bank appears to have taken seriously: contacts report elevated wage expectations, pointing to little easing over the next year.

It is a short line in a long document, but it connects several of the Statement's biggest themes — the upward revision to wage forecasts, the Bank's assessment of spare capacity, and the Monetary Policy Board's worry about Inflation expectations.

What liaison is, and why it matters

The RBA's liaison work involves Bank staff talking with businesses and other organisations about the conditions they face, wages among them. The value of this information lies in its timeliness and texture. Official wage data arrive with a lag: the most recent wage price index (WPI) figures cited in the November Statement cover the June quarter. Liaison conversations can offer an earlier read on what firms are planning to pay in coming months.

The Statement does not publish a detailed breakdown of the liaison findings in the material available — for example, by industry or region — so the summary finding is what can be reported: wage expectations are elevated, and little easing is expected over the next year.

To put the liaison message in context, the latest official figures from the Statement's economic conditions chapter show:

  • The WPI rose 3.2 per cent over the year to the June quarter.
  • Private sector WPI rose 0.7 per cent in the June quarter and 3.1 per cent over the year.

Those numbers describe the recent past. The liaison message suggests the pace is unlikely to slow quickly from here.

How liaison fed into the forecasts

The RBA has revised its WPI forecasts higher across the forecast period. It now expects year-ended wage growth of 3.4 per cent in December 2026, 3.2 per cent in December 2027 and 2.9 per cent in December 2028. The Statement links the upgrade to tighter capacity, higher inflation and inflation expectations — and the liaison evidence is consistent with all three.

If firms are telling the Bank they expect to keep lifting pay at an elevated rate over the next year, that supports a near-term WPI forecast above the 3.2 per cent recorded over the year to June. The gradual slowing pencilled in for 2027 and 2028 reflects the RBA's broader assumptions, including below-trend growth and Unemployment rising to 5.1 per cent by the end of 2028.

The expectations and capacity problem

The most significant link is to inflation expectations. In explaining the decision to raise the cash rate target by 25 basis points to 4.85 per cent on 3 November, the majority of the Monetary Policy Board said "there is an increasing risk that higher inflation expectations will become embedded."

Wage expectations and inflation expectations are closely related. A business that expects its costs and selling prices to keep rising quickly is more likely to budget for larger pay rises; workers who expect prices to keep climbing are more likely to seek them. When both sides of the bargain anticipate higher inflation, wage settlements can cement that view and, through business costs, help sustain it. Central banks often describe this as inflation becoming embedded.

The Board's statement made clear it sees inflation pressure as widespread: "Since the previous meeting, the data have confirmed that underlying inflation remains broadly based." On the latest figures, trimmed-mean inflation — the underlying measure — was 3.7 per cent over the year to the September quarter, and 1.0 per cent in the quarter itself, up from 0.8 per cent in the June quarter. Headline CPI was 3.9 per cent over the year to the September quarter, while the monthly headline CPI indicator reached 4.3 per cent over the year to September 2026.

Liaison findings on wages also speak to the RBA's judgement about how much spare capacity exists in the economy. If labour were plentiful, firms might expect to Fill roles without large pay increases. Elevated wage expectations suggest many businesses do not see it that way.

Governor Michele Bullock framed the underlying constraint in her opening statement to the Senate Economics Legislation Committee on 28 October: "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation." Without stronger productivity growth, higher wages are more likely to translate into higher unit costs for businesses.

The Statement acknowledges that capacity is hard to measure. Pressures may be understated, or labour Supply may be stronger than assumed. On the labour supply side, the participation rate averaged 66.9 per cent in the September quarter, above the RBA's expectations.

Not the whole story

Liaison is one input among many, and the Board was not unanimous in its response to the evidence. Six members voted to raise the cash rate target; three voted to leave it at 4.60 per cent. The statement gives no reasons for the minority view, so it is not possible to say how the dissenting members weighed the wage evidence.

The Board also acknowledged forces pulling the other way. Its statement noted that "The economy is slowing," and the Statement on Monetary Policy says inflation could fall faster if higher rates and falling housing prices weigh on spending.

The bottom line

The RBA's business contacts are reporting elevated wage expectations, with little easing expected over the next year. That message supports the Bank's decision to revise its WPI forecasts higher — to 3.4 per cent for December 2026 — and reinforces the Board's concern that higher inflation expectations could become embedded. The finding was part of the backdrop to the 3 November rate rise, and future liaison reports will be one of the indicators that shape the Board's thinking ahead of its next decision on 8 December 2026.