The Reserve Bank's August forecasts pencilled in late 2027 as the point when spare labour capacity starts to emerge and constrain wage growth, a date that lines up closely with its timeline for bringing inflation back to target.

For borrowers, businesses and workers trying to understand the Reserve Bank of Australia's (RBA) thinking, one date keeps appearing in its recent material: late 2027. It is when the RBA, in forecasts recorded in its August 2026 minutes, expected spare labour capacity to begin emerging, and with it a constraint on wage growth.

It is also the period in which the RBA expected underlying inflation to return to around the middle of its 2–3 per cent target band. Understanding why those two timelines line up helps explain why the Monetary Policy Board has kept tightening, lifting the cash rate target by 25 basis points to 4.60 per cent on 29 September 2026.

What the August forecasts actually said

The minutes of the 10–11 August 2026 meeting, at which the Board unanimously held the cash rate at 4.35 per cent, set out several linked forecasts:

  • Wages: wage growth was expected to be constrained over time as spare labour capacity emerges from late 2027.
  • Near-term wages: the near-term wage forecast was slightly raised, reflecting recent wage decisions and agreements.
  • Underlying inflation: expected to stay above 3 per cent until mid-2027, and to be around 2½ per cent in late 2027.
  • Unemployment: forecast to rise gradually to 4.8 per cent by end-2028.

Governor Michele Bullock repeated the inflation timing in her 18 September opening statement to the House of Representatives Standing Committee on Economics, saying the Board's forecast at that time was for inflation to return to the target midpoint by late 2027.

Why slack matters so much

Spare capacity, often called slack, refers to resources in the economy that are not being fully used. In the labour market, it means more people available for work than employers need at current conditions. When slack is scarce, employers compete for staff and wages tend to rise faster. When it builds, that competition eases.

The RBA's current assessment is that slack is still in short supply. Bullock told the parliamentary committee on 18 September that the labour market was close to, but a little tighter than, full employment, and that "The unemployment rate – at 4.5 per cent – is low by historical standards." By 29 September she said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent".

The forecast that slack emerges only from late 2027 therefore implies more than a year in which the labour market is expected to stay relatively firm. That is part of why the RBA sees inflation pressures as persistent. Bullock said on 29 September: "Inflation is too high and has been driven by domestic capacity pressures."

Questions the forecast leaves open

Is wage growth the main problem now? Not according to the Governor. She said on 29 September that "there is no wage price spiral going on in Australia." On unit labour costs she said: "Unit labour costs, yes, they are rising more quickly than is consistent with inflation", attributing that to weak productivity rather than wages.

How fast is inflation running? Headline CPI rose 4.0 per cent over the year to August 2026 on the monthly measure. Underlying inflation is lower: Bullock said "the underlying inflation rate's been about 3.5 per cent for the past six months", and the trimmed mean was 3.6 per cent in the June quarter.

Could the late-2027 timing change? It could. The forecasts were prepared before the September rate increase, and the RBA has said its next forecast update is due in November. This article does not speculate on what that update will show.

Does weak productivity complicate the picture? Yes. Bullock said on 18 September: "Continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation." Weak productivity means a given pace of wage growth adds more to costs per unit of output.

What about expectations? The RBA has stressed the risk of persistent inflation becoming self-reinforcing. "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions," Bullock said.

How the timeline connects to rate decisions

Monetary policy works with a lag, as Bullock reminded the committee on 18 September, noting that the full effects of recent rises were not yet visible. That lag is one reason the RBA focuses on where the labour market and inflation are heading, not only where they are now.

The sequence implied by the August forecasts runs roughly as follows:

  1. Underlying inflation above 3 per cent until mid-2027.
  2. Spare labour capacity emerging from late 2027, constraining wage growth over time.
  3. Underlying inflation around 2½ per cent in late 2027.
  4. Unemployment drifting up gradually to 4.8 per cent by end-2028.

Since those forecasts were made, the Board has said some upside risks have materialised, including further disruption to global oil supply from the Middle East conflict and strong AI-related demand pushing up technology-goods prices. It judged that a further tightening was warranted to return inflation to target in a reasonable period.

What the RBA has not done is tie that sequence to a specific future cash rate path. "I'm not going to give you forward guidance," Bullock said on 29 September. The Board said it "will continue to do what it considers necessary" to return inflation to target.

The bottom line

Late 2027 is the date the RBA, in its August forecasts, attached to the arrival of spare labour capacity, and to the point where that slack begins to restrain wage growth. It closely tracks the RBA's expectation of underlying inflation returning to around 2½ per cent. Between now and then, the RBA expects the labour market to loosen only gradually, which helps explain the Board's continued focus on capacity pressures.

The forecasts are not fixed. The September minutes are due on 13 October, the September CPI on 28 October, and the next decision at 2.30 pm on 3 November, with a forecast update in November.