Key Highlights

  • The RBA expects the wage price index to grow 3.4 per cent over the year to December 2026.
  • Wage forecasts have been revised higher across the forecast horizon.
  • The RBA points to tighter capacity, higher Inflation and inflation expectations as reasons.
  • Faster wage growth also carries a risk of feeding into inflation.

Wages rarely make the headlines on a rate decision day, but the Reserve Bank of Australia's November 2026 Statement on Monetary Policy contains a revision that matters for how the Bank sees the economy. Its forecasts for the wage price index (WPI) have been revised higher across the entire forecast period.

The RBA now forecasts year-ended WPI growth of:

  • 3.4 per cent in December 2026
  • 3.2 per cent in December 2027
  • 2.9 per cent in December 2028

The Statement attributes the upgrade to three factors: tighter capacity in the economy, higher inflation, and inflation expectations. It also reports that the Bank's liaison contacts describe elevated wage expectations, pointing to little easing over the next year.

What the wage price index measures, and where it stands

The WPI tracks changes in the price of labour — what employers pay for a fixed set of jobs — over time. Because it holds the composition of jobs constant, it is designed to strip out effects such as a shift in the mix of workers between higher-paid and lower-paid roles. That makes it a cleaner gauge of underlying wage pressure than average Earnings measures, and it is the measure the RBA uses for its wage forecasts.

The most recent WPI data cited in the Statement's economic conditions chapter cover the June quarter:

  • Total WPI rose 3.2 per cent over the year to the June quarter.
  • Private sector WPI rose 0.7 per cent in the June quarter and 3.1 per cent over the year.

A forecast of 3.4 per cent for December 2026 therefore implies some pick-up from the 3.2 per cent pace recorded over the year to June. Put another way, the RBA is not expecting wage growth to fade in the near term — it is expecting it to firm a little before easing back from 2027.

The Statement does not publish the specific August WPI forecasts in the material available so the exact size of the revision at each horizon is not set out here. What the Statement does make clear is the direction: higher across the period.

Why the RBA moved its forecast

Each of the three reasons the Bank gives connects to a theme running through the November Statement.

Tighter capacity. The RBA judges that the economy has limited spare room. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation." When labour is relatively scarce, employers tend to compete harder for staff.

Higher inflation. The inflation outlook has been revised materially higher. The RBA now forecasts headline CPI inflation of 4.5 per cent over the year to December 2026, up from 3.6 per cent in August, and trimmed-mean (underlying) inflation of 3.6 per cent, up from 3.3 per cent. Higher prices can feed into wage negotiations as workers seek to maintain their purchasing power.

Inflation expectations. This was central to the Board's decision. The majority reasoning in the Monetary Policy Board's statement was that "there is an increasing risk that higher inflation expectations will become embedded." If businesses and workers come to expect higher inflation, those expectations can show up in wage settlements, which in turn feed into prices.

Wages, Unemployment and the rate decision

The wage forecasts help explain why the Board raised the cash rate target by 25 basis points to 4.85 per cent on 3 November, even though, in its own words, "The economy is slowing."

From a central bank's perspective, wage growth is both a sign of labour market pressure and a channel through which inflation can persist. Firmer wage growth at a time when productivity growth is weak can add to Business costs. The Board's statement said "Inflation remains elevated and recent data indicate that it is broadly based."

The Board was split on how to respond. Six members voted to increase the cash rate target; three voted to leave it at 4.60 per cent. The statement does not explain the reasoning of the minority.

The November forecasts combine higher wage growth with higher unemployment — the RBA expects the unemployment rate to rise to 5.1 per cent by the end of 2028. That combination can seem counterintuitive, because a softer labour market is usually associated with slower wage growth.

The Statement's explanation for the unemployment overshoot helps reconcile the two. Unemployment rose more than anticipated in the September quarter partly because more people joined or stayed in the labour force, while "employment growth held up in the September quarter as expected." the higher jobless rate does not simply reflect weaker labour demand. Meanwhile, the forecast path shows wage growth slowing to 2.9 per cent by December 2028 as unemployment drifts up and inflation returns towards target.

How far wages lag prices

For households, the comparison that matters is wages against prices. On the RBA's forecasts, WPI growth of 3.4 per cent in December 2026 sits below forecast headline inflation of 4.5 per cent for the same period. By December 2027, forecast WPI growth of 3.2 per cent would be above forecast headline inflation of 2.7 per cent. All of these are RBA forecasts, conditioned on a cash rate path based on market pricing as at 28 October 2026, and they are subject to the "heightened uncertainties" the Board's statement describes.

The bottom line

The RBA has revised its wage forecasts higher across the board, now expecting the wage price index to grow 3.4 per cent over the year to December 2026, before slowing to 3.2 per cent in December 2027 and 2.9 per cent in December 2028. It cites tighter capacity, higher inflation and inflation expectations, and its business liaison points to little easing in wage expectations over the next year. For the Board, firmer wages are part of the case for tighter policy; the next decision is due on 8 December 2026.