A single labour market figure in Iain Ross's wage-price spiral speech helps explain why the RBA sees little risk of wages chasing prices, even as inflation remains stubbornly high.

Why would a speech about wage-price spirals stop to note the unemployment rate for one month?

When Monetary Policy Board member Iain Ross AO addressed the University of Melbourne on 22 September, his subject was historical and institutional: whether Australia faces the kind of self-reinforcing loop between wages and prices that marked the 1970s. Yet among the data points he cited was a very current one. The unemployment rate, he noted, was 4.5% in July 2026, up from 4.2% a year earlier.

That three-tenths of a percentage point rise over twelve months is modest. But its place in the speech is telling. In an argument about whether workers have the bargaining power to push wages up faster and faster in response to rising prices, the amount of spare capacity in the labour market is part of the evidence.

Why unemployment belongs in a spiral debate

A wage-price spiral needs fuel. In the definition Ross used, drawn from an International Monetary Fund study, a spiral episode is one where year-ended consumer price inflation and nominal wages growth increased successively for three out of four consecutive quarters. For wages to keep accelerating like that, workers generally need both the motivation and the leverage to win bigger increases.

Motivation is not in short supply when prices are rising. Governor Michele Bullock acknowledged as much at her 29 September media conference: "Every household has seen how the price of everything has gone up in recent years," she said, and "Pay packets don't go as far as they used to".

Leverage is a different matter. As a general principle, when unemployment is low and falling, employers compete for staff and workers can more readily switch jobs or demand more. When unemployment is rising, even gradually, that leverage tends to soften. A jobless rate moving from 4.2% to 4.5% over a year points in the direction of a labour market where bargaining power is easing rather than intensifying.

One figure among several

The July number did not carry Ross's argument by itself. His speech set it alongside institutional features that shape how quickly wages can respond to prices.

  • Only around 10% of employees on enterprise agreements renegotiate each year.
  • The average nominal term of agreements lodged over the year to March 2026 was three years.
  • Working days lost to industrial disputes have stayed at very low levels since around 2012.
  • Union membership has fallen from slightly more than half of employees in the late 1970s to about 13% now.

Read together with the unemployment trend, those features suggest wages today adjust slowly and in staggered fashion, rather than in the rapid, economy-wide rounds that characterised earlier decades. Ross concluded there is little evidence of a wage-price spiral risk under current institutions.

How 4.5% fits with the Governor's 4.6%

A week after Ross spoke, Bullock gave a slightly different figure. At her media conference following the decision to lift the cash rate target by 25 basis points to 4.60%, she said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent".

The two statements are measuring different things over different periods. Ross named a specific month, July, and compared it with the same month a year earlier. The Governor was describing the broader journey over roughly two years. Monthly labour force readings can move around, so small differences between figures cited on different days are not unusual. Both describe the same underlying story: a gradual rise from very low levels.

Bullock added that unemployment is "still quite low historically" and that there have been "over a million jobs created". A labour market can be loosening and still be relatively strong.

The rise in unemployment lines up with how the RBA has been describing the labour market in its formal communications.

In the August Statement on Monetary Policy, published on 11 August when the cash rate was 4.35%, the Bank assessed the labour market as "still ... a little tighter than full employment". That document predates the September hike, but it remains a useful reference point.

The Monetary Policy Board's 29 September statement then said labour market conditions have "eased broadly as expected in recent months" and that leading indicators were "broadly stable". An unemployment rate that edges up at a measured pace is broadly what "easing as expected" looks like.

Bullock also noted: "yes, there is some evidence that there are more multiple job holders than there used to be". That is a reminder that headline unemployment does not capture everything about how people are experiencing the labour market.

If not wages, then what?

If the labour market is loosening and a spiral is not in prospect, why did the Board raise rates? The answer lies in the other pressures it identified. Its statement said "recent inflation outcomes in Australia were stronger than expected at the previous meeting", that "Firms are experiencing cost pressures", and that "global oil supply disruptions are maintaining upward pressure". Bullock said "Productivity growth remains weak" and that "Businesses in our liaison program continue to expect strong increases in their costs."

Headline inflation was 4.0% over the year to August on the monthly CPI indicator, and the Governor put underlying inflation at "about 3.5 per cent for the past six months". Both remain above the 2–3% target. The concern the RBA emphasised is not wages chasing prices, but that "It's critical that we stop expectations for high inflation from becoming embedded".

In that sense, the July unemployment figure works in two directions. It supports the view that wages are not the main threat. But it also shows that tighter policy is already having some effect on the labour market, which is part of the trade-off the Board weighs each time it meets.

The bottom line

The 4.5% July jobless rate, up from 4.2% a year earlier, is a small number with a specific job in Ross's speech: it is part of the evidence that workers' bargaining power is not building in a way that would ignite a wage-price spiral. Combined with slow-moving enterprise bargaining, low industrial disputation and much lower union membership than in the 1970s, it underpins the RBA's view that wages are not what is keeping inflation high.

What to watch next is whether the labour market continues to ease gradually, as the Board expects, while inflation begins to respond. The next CPI release is due on 28 October, and the Board meets again for a decision at 2:30 pm AEDT on Tuesday 3 November 2026.