From 2.7% to 3.7%: The Pay Measure Forecast to Speed Up as the WPI Slows

Sonal Goyal

14 October 2026 10:14 PM AEDT

From 2.7% to 3.7%: The Pay Measure Forecast to Speed Up as the WPI Slows

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Key Highlights

Average earnings per hour are projected to accelerate from 2.7% to 3.7% by mid-2027.
The Wage Price Index is projected to hold at 3.3% and then slow to 2.9% by late 2028.
The Governor insists wages are not driving inflation, and the forecasts were finalised before September’s rate rise.

Tucked inside the RBA's August forecast table is a divergence between two wage gauges: average earnings per hour are projected to accelerate sharply into 2027, while the Wage Price Index holds steady and then eases.

Wage growth in Australia is not captured by a single number. The Reserve Bank of Australia (RBA) publishes forecasts for more than one pay measure, and in its August 2026 Statement on Monetary Policy (SMP) two of them head in noticeably different directions over the next year.

Average earnings per hour in the non-farm sector grew by 2.7% over the year to June 2026, according to the SMP table. The RBA forecast that rate to rise to 3.0% by December 2026 and 3.7% by June 2027 — a full percentage point faster than the June 2026 pace.

Over the same stretch, the Wage Price Index (WPI) was forecast to grow by a steady 3.3%, before slowing to 3.1% by December 2027, 3.0% by June 2028 and 2.9% by December 2028. Average earnings per hour also ease after their peak, to 3.6%, 3.4% and then 3.2% — but they remain above WPI growth for the rest of the forecast period.

These forecasts were finalised on 5 August 2026, before the Monetary Policy Board raised the cash rate target to 4.60% on 29 September, so they do not take that decision into account.

Two gauges, two trajectories

The two measures are built differently. As its name suggests, the WPI is an index tracking the price of wages. Average earnings per hour is a broader measure of what is paid for each hour worked across the non-farm economy. Because they are constructed differently, the two can grow at different rates in the same period, which is one reason the RBA forecasts both.

Laid side by side, the August forecasts look like this:

June 2026: WPI 3.3%; average earnings per hour 2.7%
December 2026: WPI 3.3%; average earnings per hour 3.0%
June 2027: WPI 3.3%; average earnings per hour 3.7%
December 2027: WPI 3.1%; average earnings per hour 3.6%
June 2028: WPI 3.0%; average earnings per hour 3.4%
December 2028: WPI 2.9%; average earnings per hour 3.2%

In June 2026, average earnings per hour were growing more slowly than the WPI. By December 2026 the gap has narrowed, and by June 2027 the order has flipped, with average earnings per hour forecast to grow 0.4 percentage points faster than the WPI. From then on the two paths ease together, with the broader measure staying above the index.

The figures alone do not identify a cause for the divergence, and this article does not attempt to attribute one. What can be said is that the RBA's overall picture of pay is not one of runaway growth on either measure. The pay forecasts also sit alongside a labour market the RBA expected to loosen gradually, with the forecast unemployment rate rising from 4.4% in June 2026 to 4.8% by 2028.

What the Governor said about pay

Governor Michele Bullock was firm on that point at her 29 September media conference, saying "there is no wage price spiral going on in Australia." She also observed: "They're seeing real wage cuts."

That second remark reflects the gap between pay and prices. Headline consumer price inflation was 4.0% over the year to August 2026 on the monthly CPI, while the underlying trimmed mean measure was 3.6% over the year to the June quarter. On the SMP table, headline CPI inflation for the June quarter of 2026 was 3.9% — above both the 3.3% WPI figure and the 2.7% average earnings figure for that period.

The minutes of the 28–29 September meeting add an important nuance. Unit labour cost growth was above the level consistent with the inflation target, but this was driven mainly by weak productivity rather than strong wages. Bullock was blunter: "The bottom line is that productivity is doing nothing."

Where productivity fits into the acceleration

Productivity is the key to whether faster earnings growth adds to cost pressures. The August forecasts show labour productivity shrinking by 0.5% over the year to June 2026 and again to December 2026, before recovering to 0.4% by June 2027, 0.6% by December 2027 and 0.7% through 2028.

The timing is notable. The forecast jump in average earnings per hour to 3.7% in June 2027 coincides with productivity returning to positive growth in the same period. If output per hour is rising, some of the faster growth in earnings can be absorbed without the same upward pressure on the cost of labour per unit of output. If the productivity recovery did not eventuate, faster earnings growth would sit against a weaker backdrop — though that is a hypothetical scenario, not an RBA forecast.

Pay growth set against projected inflation

The same August table projects inflation falling as average earnings per hour climb. Headline CPI inflation was forecast at 3.6% for December 2026 and 2.8% for June 2027, then 2.6%, 2.4% and 2.4%. The trimmed mean was forecast at 3.3% in December 2026, 3.0% in June 2027, 2.6% in December 2027 and 2.4% through 2028.

On those numbers, by June 2027 both pay measures are forecast to grow faster than headline inflation — 3.3% for the WPI and 3.7% for average earnings per hour, against headline inflation of 2.8%. That is a comparison of forecasts, not an RBA statement about real wages, and it predates the September rate rise and the inflation data that prompted it.

The September statement noted that "some of the upside risks flagged in August are materialising", and the minutes recorded that July's monthly CPI was stronger than expected, particularly for market services. Those developments may feed into revised forecasts.

The bottom line

The RBA's August forecasts show average earnings per hour accelerating from 2.7% to 3.7% by mid-2027 even as the WPI holds at 3.3% and then slows to 2.9% by late 2028. The divergence sits within a broader outlook of recovering productivity and falling inflation, and alongside the Governor's insistence that wages are not driving inflation. The forecasts were finalised before September's increase. The next CPI release is scheduled for 28 October and the next cash rate decision for 3 November.

The Wage Price Index and average earnings are distinct statistical measures and should not be interpreted as interchangeable.

FAQs

Q: What do the forecasts show for the two pay measures?

A:Average earnings per hour accelerate from 2.7% to 3.7% by mid-2027, while the WPI holds at 3.3% and slows to 2.9% by late 2028.

Q: Does the RBA think wages are driving inflation?

A:No. The Governor has said wages are not driving inflation, and the forecasts sit alongside a recovery in productivity and falling inflation.

Q: When are the next key dates?

A:The next CPI release is scheduled for 28 October and the next cash rate decision for 3 November 2026.

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