An RBA Monetary Policy Board member has discussed why a 1970s-style Wage-Price Spiral appears unlikely in Australia today, highlighting differences in wage-setting arrangements, Inflation expectations and labour market structures compared with the conditions that contributed to high inflation in the 1970s. Iain Ross AO presented the views in a speech titled “A Wage-price Spiral: What are the Chances?” delivered in Melbourne and published on 22 September 2026.

Lessons from the 1970s

Ross explained that Australia experienced a significant increase in inflation during the 1970s, with inflation rising from around 3 per cent in 1969 to above 16 per cent in 1974. During the same period, male average weekly Earnings growth reached 25 per cent in 1974.

He identified two key institutional factors that contributed to the spread of wage increases during that period. The first was comparative wage justice, where wage adjustments in one industry influenced increases across other sectors. The second was quarterly wage indexation linked to consumer prices, which operated between 1975 and 1981.

These mechanisms created stronger links between previous price increases and future wage adjustments, allowing inflation pressures to become more embedded.

Why current conditions differ

Ross highlighted that Australia’s current wage-setting framework operates differently. Modern awards provide a minimum employment standard, while annual wage reviews determine adjustments for award-reliant workers.

Enterprise agreements generally operate for several years and are legally enforceable, meaning wage changes are not automatically adjusted in response to short-term inflation movements. Ross noted that only a portion of employees covered by enterprise agreements renegotiate wages each year.

He also discussed changes in bargaining conditions over recent decades. Union membership has declined from around 50 per cent in the late 1970s to 13 per cent in 2025, while industrial disputes have become less frequent.

Ross also pointed to the role of inflation expectations. Under Australia’s inflation-targeting framework, expectations have remained more stable compared with earlier inflation periods, reducing the likelihood that temporary price increases automatically translate into ongoing wage and price adjustments.

Recent inflation and wage data

Australia experienced a rise in inflation during 2022 and 2023, with inflation reaching around 8 per cent. The Wage Price index also increased during this period, reaching a peak of around 4 per cent.

Both inflation and wage growth have since moderated. Ross noted that real wages declined during the inflation surge, although the outcome differs depending on the measure used. The real Wage Price Index remains below pre-pandemic levels, while real average earnings measured through national accounts have recovered above earlier levels.

Ross also referred to labour market conditions, noting that the Unemployment rate was 4.5 per cent in July 2026 compared with 4.2 per cent a year earlier. He described labour market conditions as being somewhat tighter than full employment.

The speech also referenced productivity trends. Ross noted that labour productivity and real average hourly earnings have generally moved together over the longer term. When wage growth occurs alongside productivity improvements, the impact on labour costs per unit of output can be moderated.

Implications for households and businesses

The speech focused on the risk of wages and prices reinforcing each other over time. Ross stated that current evidence does not indicate the emergence of a wage-price spiral.

The argument is based on differences in wage-setting structures, including fewer automatic links between inflation and wage adjustments compared with the 1970s. These conditions may influence how workers negotiate wages and how businesses assess labour costs.

The comments do not represent a forecast for Interest Rate decisions. Monetary policy decisions are determined by the RBA Board collectively, and financial institutions independently determine lending and deposit rates.

Factors to monitor

Ross also highlighted several areas that require ongoing observation. Productivity growth has slowed in Australia and other advanced economies, while measures of real wage recovery can vary depending on the data source.

Short-term movements in wages and productivity may also differ from longer-term trends. Institutional arrangements can influence inflation outcomes but do not determine them completely.

What to watch next

Future Wage Price Index releases, labour market data from the Australian Bureau of Statistics, and updated RBA forecasts will provide further information on wage growth, inflation trends and economic conditions.

Changes in unemployment, productivity growth or wage-setting behaviour will remain important factors in assessing whether inflation pressures are continuing to ease or changing direction.