Key Highlights

  • WPI growth is forecast to hold at 3.3% until mid-2027, then ease to 2.9% by December 2028.
  • That would still be above forecast inflation of 2.4% at that point.
  • The RBA says wages are not driving inflation, and the forecasts predate the September rise to 4.60%.

The RBA's August forecasts show growth in the Wage Price Index holding at 3.3% for a year before easing by just 0.4 percentage points over the following 18 months — a gradual cooling rather than a sharp slowdown.

If the Reserve Bank of Australia's (RBA) forecasts for wages were drawn as a line, it would look less like a cliff and more like a gentle slope. In its August 2026 Statement on Monetary Policy (SMP), the RBA projected year-ended growth in the Wage Price Index (WPI) of 3.3% in June 2026, December 2026 and June 2027. The rate then eases to 3.1% by December 2027, 3.0% by June 2028 and 2.9% by December 2028.

That is a slowdown of 0.4 percentage points spread across two and a half years. It sits within a forecast in which inflation returns to the RBA's target range, the unemployment rate rises modestly and productivity recovers from a period of decline.

One caveat applies throughout: the August forecasts were finalised on 5 August 2026, before the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60% on 29 September. They reflect the information and assumptions available at that time.

A plateau, then a gentle descent

The shape of the WPI forecast is worth unpacking. For the first year of the forecast period, wage growth is flat at 3.3%. The descent begins only in the second half of 2027, and it is gradual: 0.2 percentage points over the next six months, then 0.1 percentage points in each of the following two half-years.

By late 2028, WPI growth of 2.9% is still above both of the RBA's inflation forecasts for that period. Headline CPI inflation and the trimmed mean measure of underlying inflation are each forecast at 2.4% in December 2028 — a gap of 0.5 percentage points between forecast wage growth and forecast inflation.

That comparison is simple arithmetic on two published forecasts, not an RBA statement about real wages, and both sets of numbers are subject to revision.

Why the RBA doesn't see wages as the driver

A slow fade in pay growth fits with the RBA's description of what is, and is not, causing inflation. Governor Michele Bullock was direct at her 29 September media conference, saying "there is no wage price spiral going on in Australia."

Instead, she pointed to the broader balance of demand and supply: "Inflation is too high and has been driven by domestic capacity pressures." The minutes of the 28–29 September meeting record that unit labour cost growth was above the level consistent with the inflation target, but driven mainly by weak productivity rather than strong wages.

That distinction may help explain why a WPI growth rate near 3% can coexist with the RBA's inflation goals in the forecasts. The August SMP has labour productivity recovering from –0.5% through 2026 to 0.4% by June 2027, 0.6% by December 2027 and 0.7% through 2028. In the minutes' framing, it is the productivity weakness — rather than the pace of pay rises — that has been the main problem for labour costs.

Bullock summarised the current state bluntly: "The bottom line is that productivity is doing nothing."

What the forecast rests on

Forecasts are conditional, and the WPI path depends on assumptions about the rest of the economy. Several features of the August outlook form the backdrop to the gradual slowdown in wage growth:

  • A cash rate assumption below today's level. The forecasts assumed a cash rate of 4.4% for December 2026 and 4.5% through 2027, easing to 4.4% in 2028. The actual cash rate target is now 4.60%.
  • A gradually loosening labour market. The forecast unemployment rate rises from 4.4% in June 2026 to 4.8% by June 2028. Hours-based underutilisation climbs from 5.6% to 6.2% by December 2028.
  • Inflation returning to target. The trimmed mean is forecast to fall from 3.6% in June 2026 to 2.4% in 2028, with the SMP describing a decline to "the midpoint of the 2–3 per cent target range in 2028".
  • Steady employment growth. Jobs growth stays between 1.1% and 1.4% across the forecast period.

The September decision and the data behind it came after these assumptions were set. The post-meeting statement said "some of the upside risks flagged in August are materialising", while the minutes noted that unemployment rose to 4.6% in August alongside higher participation and that "considerable caution is warranted when interpreting the current official labour force data."

A different picture on the broader earnings measure

The WPI is not the only pay gauge in the RBA's forecasts. Average earnings per hour in the non-farm sector follow a different path: 2.7% in June 2026, accelerating to 3.0% in December 2026 and 3.7% in June 2027, before easing to 3.6%, 3.4% and 3.2% by December 2028.

So while the WPI fades steadily, the broader earnings measure rises first and fades later, remaining above the WPI from mid-2027 onwards. Over the full forecast period, headline inflation is projected to fall by 1.5 percentage points, from 3.9% in June 2026 to 2.4% in December 2028. Over the same period, WPI growth eases by 0.4 percentage points, while growth in average earnings per hour is 0.5 percentage points higher at the end than at the start. On the RBA's numbers, inflation falls much further than either pay gauge.

For now, though, prices have the upper hand. Headline CPI inflation was 4.0% over the year to August 2026 on the monthly measure, and underlying trimmed mean inflation was 3.6% over the year to the June quarter. Bullock acknowledged the squeeze: "They're seeing real wage cuts."

The bottom line

The RBA's August forecasts describe a long, slow fade in WPI growth — steady at 3.3% until mid-2027, then easing to 2.9% by December 2028, still above forecast inflation of 2.4% at that point. The Bank says wages are not driving inflation, attributing elevated unit labour costs mainly to weak productivity. Those forecasts predate the September rate rise to 4.60% and will be reassessed. The September CPI is scheduled for release on 28 October, and the Board's next decision is scheduled for 3 November.

The 2.9% wage-price-index figure is a conditional forecast for December 2028, not a realised wage outcome.