In a September lecture, Monetary Policy Board member Iain Ross AO set out how far Australia's wage-setting system has changed since the 1970s — and why, in his view, the conditions for a wage-price spiral are not present today.

Union membership figures are not usually the stuff of monetary policy debates. But when inflation is running above target and businesses are passing on higher costs, the question of how wages respond becomes central. Could rising prices trigger bigger pay claims, which in turn push prices higher again?

Iain Ross AO, a member of the Reserve Bank's Monetary Policy Board, tackled that question in a speech at the University of Melbourne on 22 September titled "A Wage-price Spiral: What are the Chances?". Speaking in a personal capacity, he drew on history, international research and the structure of today's labour market. Among the figures he cited: union coverage "is now 13 per cent", and in the private sector it stood at "7.9 per cent in 2024."

Why union coverage matters to the spiral question

A wage-price spiral describes a self-reinforcing loop: prices rise, workers seek compensation through higher wages, firms raise prices to cover those costs, and the cycle repeats. For that loop to take hold across an economy, wage increases need to respond quickly and broadly to inflation.

Collective bargaining power is one of the channels through which that can happen. When a large share of the workforce is covered by unions that can press for pay rises in step with prices, the feedback from inflation to wages is likely to be faster and more widespread. With overall coverage at 13 per cent and private-sector coverage below 8 per cent, that channel is considerably narrower than in earlier decades of Australian history.

Ross also pointed to features of how agreements are set. He noted that the share of agreement-covered employees moving to a new agreement each quarter "has generally been around 10 per cent" since 2000, and that "The average nominal term of agreements lodged over the year to March 2026 was three years." Wages under existing agreements are set for a period, and only a fraction of workers renegotiate at any one time, so pay tends to adjust in a staggered way rather than all at once.

A very different system from the 1970s

The contrast with the past is stark. Ross recalled that inflation over 1969–74 rose "from 3 per cent to over 16 per cent", with male average weekly earnings growth "reaching 25 per cent in 1974."

The policy response in that era wired prices and wages tightly together. "Quarterly wage indexation was introduced from early 1975," Ross said. The system lasted several years "before being formally abandoned in July 1981." He also recalled the December 1982 metal trades award, which "involved a $20 per week wage increase, acceptance of a 38-hour working week".

Those episodes illustrate a wage-setting system with far more centralised, economy-wide mechanisms than today's. The low union coverage and staggered agreement cycle Ross described point to a much more fragmented process.

What the international evidence shows

Ross also referred to research looking at spirals across many countries. "Across 31 advanced economies, they identify 79 wage-price spiral episodes between the 1960s and 2022," he said. Crucially: "Only a small minority of these episodes were followed by a sustained acceleration in both wages and prices."

His conclusion for Australia was direct: "there is no evidence of the emergence of a wage-price spiral in the present circumstances".

Governor Michele Bullock reached the same conclusion at her 29 September media conference, telling reporters: "I concur with his view that, no, this is not a wage price spiral." Her remark matters because it comes from the Governor herself, and because it sits alongside her own diagnosis that inflation "has been driven by domestic capacity pressures."

Why the Board is still wary of wages and costs

No spiral does not mean no concern. The RBA still sees labour costs and business pricing as part of its inflation problem. The August Statement on Monetary Policy described unit labour cost growth of 3.3 per cent over the year to the March quarter as elevated. The minutes of the August meeting recorded that the near-term wage forecast had been "slightly upgraded" due to recent wage decisions and agreements. The August forecasts had the Wage Price Index growing at 3.3 per cent through to mid-2027 — forecasts made with a cash rate assumption of around 4.3 to 4.5 per cent, before the September hike.

Business cost expectations are also high. Bullock said: "Indeed, businesses in our liaison program continue to expect strong increases in their costs over the year ahead." The Board's 29 September statement noted that short-term inflation expectations are high and that firms are raising or planning to raise prices. Its stated focus is on preventing high inflation from becoming embedded.

The inflation numbers frame the debate. Headline inflation, on the monthly CPI indicator, was 4.0 per cent over the year to August, and the quarterly headline figure was 3.9 per cent over the year to the June quarter. Underlying inflation, as measured by the trimmed mean, was 3.6 per cent in the June quarter; Bullock described it as "about 3.5 per cent". The target is 2–3 per cent, with a 2.5 per cent midpoint.

Weak productivity is part of why wage growth matters. "The bottom line is that productivity is doing nothing," Bullock said. When output per worker is not rising, a given pace of wage growth flows more directly into firms' costs.

The bottom line

Ross's lecture contrasts today's labour market with the conditions of the 1970s: union coverage is low, especially in the private sector at 7.9 per cent, and bargaining is spread out over multi-year agreements. His conclusion is that there is no evidence of a wage-price spiral emerging, and the Governor has said plainly that "this is not a wage price spiral."

That has not taken pressure off the Board's inflation fight, which it has framed around capacity pressures, high short-term expectations and firms' pricing. The Board raised the cash rate target to 4.60 per cent on 29 September and has offered no forward guidance on what comes next. The September minutes are due on 13 October, the next CPI release on 28 October, and the next decision at 2.30 pm on 3 November.