A speech by Monetary Policy Board member Iain Ross AO sets out why the institutions that turned 1970s Inflation into a Wage-Price Spiral look very different today, even as the RBA raises rates to contain inflation.

In 1974, average weekly Earnings for men grew by 25%. Inflation, which had been about 3% in 1969, climbed to more than 16% that year. For many Australians who lived through the period, those numbers still define what runaway inflation looks like.

With the cash rate now at 4.85% after the Reserve Bank's fifth increase of 2026 on 3 November, and monthly headline CPI inflation at 4.3% in year-ended terms in September, it is natural to ask whether something similar could happen again. A speech delivered on 22 September 2026 by Iain Ross AO, a member of the RBA's Monetary Policy Board, titled "A Wage-price Spiral: What are the Chances?", tackles exactly that question.

His conclusion was measured: "there is little evidence that a self-sustaining wage-price spiral has emerged following the latest inflationary episode."

What a wage-price spiral is

A wage-price spiral occurs when rising prices push workers to seek higher wages, and higher wages in turn push businesses to raise prices, with each round feeding the next. The danger is that the process becomes self-sustaining, keeping inflation high even after the original shock has faded.

Ross pointed to international research by Alvarez and co-authors, which identified 79 wage-price spiral episodes across 31 advanced economies. Such episodes are not merely theoretical, but neither are they inevitable.

How the 1970s machinery worked

Part of what made the 1970s so damaging in Australia was the way wages were set. Ross noted that quarterly wage indexation was introduced from early 1975 and was not abandoned until July 1981. Under indexation, wages were adjusted in line with prices at regular intervals, which created a direct mechanical link between past inflation and future pay rises.

Union membership was also far higher. In the late 1970s, slightly more than half of employees were union members. That gave organised labour considerable reach in wage-setting across the economy.

Other policy responses of the era also failed. Assistant Governor (Economic) Sarah Hunter, in an interview aired on 25 October 2026, cited 1970s price controls and an early-1980s wage freeze as alternatives to interest rates that did not work.

Why today looks different

The labour market institutions Ross described today are markedly different. The key differences include:

  • Union density of 13%. Overall union membership has fallen from slightly over half in the late 1970s to 13% now. In 2024, membership was 7.9% in the private sector and 33.2% in the public sector.
  • No automatic indexation. The quarterly indexation system that hardwired past inflation into wages was abandoned in July 1981.
  • Longer agreements. The average term of an enterprise agreement is three years, and about 10% of agreement-covered employees move to a new agreement each quarter.

The last point is important. Because only a fraction of agreement-covered workers renegotiate in any given quarter, a burst of inflation does not flow through into the whole wage structure at once. That staggered timing tends to slow the transmission of price shocks into pay.

Ross also drew attention to the relationship between wages and productivity, noting that the Wage Price index captures around half of trend productivity growth, and that over the inflation-targeting period real earnings and productivity have each grown by around 1% a year. "Productivity growth is an enabler and a constraint on real wages growth," he said.

Why the RBA is still worried

Less risk of a classic spiral does not mean no inflation risk. The Board's statement on 3 November said "Inflation remains elevated and recent data indicate that it is broadly based" and warned that "there is an increasing risk that higher inflation expectations will become embedded."

That concern is less about union bargaining and more about how firms and households think about future prices. Deputy Governor Andrew Hauser said at a Citi conference fireside chat on 21 October that a rising share of firms see 3–3.5% inflation as the "new normal". "We can't allow expectations to shift away from the target," he said.

The underlying data reinforce the point. Trimmed mean inflation, the RBA's preferred underlying measure, was 3.7% in year-ended terms in the September quarter and 1.0% in the quarter. That is distinct from the 4.3% monthly headline figure for September, and both sit above the 2–3% target.

The November 2026 Statement on Monetary Policy forecasts that headline and underlying inflation will stay above 3% through much of 2027, with its forecast table showing headline inflation of 2.7% and trimmed mean of 2.9% by December 2027. These are forecasts and depend on assumptions about energy prices, the cash rate and the exchange rate.

Governor Michele Bullock also noted, in her opening statement to the Senate Economics Legislation Committee on 28 October, that "the labour market seems a little tighter than we had previously judged." A tight labour market can put upward pressure on wages even without the institutional features of the 1970s.

The November decision was split, with six members voting to raise the cash rate to 4.85% and three voting to hold at 4.60%. Individual votes have not been disclosed, and Ross's September speech should not be read as an indication of how he or any other member voted.

What the speech does provide is a framework for one of the questions the Board is weighing: whether high inflation is at risk of locking itself in through wages. On that narrow question, Ross's assessment was that the evidence so far does not point to a self-sustaining spiral. The broader question of whether inflation expectations become embedded remains, in the Board's own words, an increasing risk.

The bottom line

Australia's wage-setting system has changed profoundly since the 1970s. Union membership has fallen from more than half to 13%, automatic quarterly indexation ended in 1981, and multi-year enterprise agreements mean wage adjustments are spread over time. Those features help explain why Ross found little evidence of a self-sustaining wage-price spiral after the latest inflationary episode.

The RBA's concern now centres on broad-based inflation and on expectations, rather than on a mechanical wage spiral. Readers thinking about how inflation and wage conditions affect their own finances can consider speaking with a licensed adviser.