A Monetary Policy Board member presented evidence that wages are not causing current inflation, directly contradicting Reserve Bank governor Michele Bullock’s call for higher unemployment to cool price pressures.
A board member’s speech argued there is no empirical support for a wages-driven inflationary spiral.
William Mitchell and commenters have tracked a long-running pattern of RBA rate hikes justified by NAIRU-style reasoning.
The NAIRU concept is unobserved and estimates have shifted, undermining confidence in using it as a policy target.
On September 22, 2026, a member of the Reserve Bank of Australia's Monetary Policy Board delivered a speech titled "A Wage-price Spiral: What are the Chances?" at Melbourne University. The member concluded there is no evidence supporting the argument that wages are driving current inflation.
The juxtaposition of these two public interventions—one questioning the wages-driven inflation story, the other leaning on it to justify tighter policy—creates a clear policy conflict inside the central bank's public narrative. If wage growth is not causing inflation, then tightening policy to push unemployment higher will have social and economic costs without addressing the true drivers of price change.
The governor's argument relies on a NAIRU-style framework: an unobserved level of unemployment at which inflation stabilises. The RBA has repeatedly shifted its point estimates for NAIRU in recent years. Because the concept is unobserved and difficult to estimate precisely, relying on it as a primary justification for rate hikes invites error.
William Mitchell's critique and historical context
Economist William Mitchell has documented a sequence of blog posts tracing the RBA's policy choices since 2020. He argues the bank has repeatedly used labour-market tightness as the rationale for raising rates even when other evidence pointed to supply-driven inflation or one-off shocks. Mitchell lists many posts that chronicle his view that rate hikes were ideologically driven and not supported by wage or inflation data.
If the board member's assessment is correct, then further interest-rate increases aimed at raising unemployment would be a blunt instrument that risks harming workers and mortgage holders without materially lowering inflation. The debate highlights the need for central banks to be transparent about which indicators they treat as causal drivers and how they weigh supply shocks, imported costs, and labour-market dynamics.
Related signals and public reaction
Comments on the blog post show readers are divided but many echo Mitchell's concern that RBA economists remain influenced by New Keynesian frameworks and NAIRU thinking. Some contributors suggest alternative policy tools, including fiscal measures, to address demand-side inflation without increasing unemployment.
"There is no wages problem in Australia that is driving the current inflationary pressures. The RBA is just making this up." In more recent times Governor Bullock certainly has NOT been saying this and reiterated there is "no wages break-out" at yesterday's post meeting presser. However, Bullock did make note of higher
In reply to <a href="https://billmitchell.org/blog/?p=63389#comment-206311">Mark Kinnear</a>. Dear Mark Kinnear (at 2026/10/01 at 6:47 pm) I actually think the reason the RBA hikes rates in this current environment is that their economists are infested with mainstream New Keynesian thinking where the NAIRU concept is c
Michele Bullock- "I don't like to talk about this NAIRU". Why so shy,Michele? You have obviously been so thoroughly brainwashed by the economic conventional wisdom that you should have no reluctance to join in the current group think. By your actions you will be known. While we have brain dead politicians in power (and
What with Chalmers and the mainstream media today announcing an "improvement in the budget bottom line" (a reduction in the deficit!) and tomorrow's interest rate rise, we may well ask what planet are we living on. It must be becoming obvious that the "stickiness" in the inflation rate that the RBA obsesses over is ent
Let’s be honest; The only reason why the RBA hikes rates is to protect bank profits from being eaten away by inflation.
Bill's saying that the RBA economists are infested with NK type thinking and NAIRU concepts which means that they want to push up interest rates to increase unemployment as so reduce the rate of inflation. Also that they do genuinely believe in what they are saying. I'd go along with that. I'd also go along with Bill's
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