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Higher interest rate expectations yet to effect wages

Major bank sees monthly wage growth dropping in October, saying that the 'slower growth in the wage bill means slower growth in household labour income'.

3 min read
Monthly wages growth fell during October.
Monthly wages growth fell during October.

THERE appears to be no sign of higher inflation expectations playing a significant role in wages, according to a new Commonwealth Bank report.

The latest CommBank Wage and Labour Insights series saw monthly wage growth slowed again in October, easing to the slowest pace since December 2025.

In annualised terms, monthly wage growth eased to 3.1 per cent in October from a high of 3.5 per cent recorded in August.

The drop puts monthly wage growth at the weakest pace recorded this year, and below the 3.2-3.3 per cent pace it held through the first seven months of 2026.

§ Inflation expectations yet to become embedded in wages

CommBank economist Harry Ottley said the moderation in monthly wage growth shows there’s still no sign that higher inflation expectations have become embedded in wages.

“Our monthly measure on wages shows a clear slowdown and confirms the lift from the 4.75 per cent Fair Work Commission award increase was short and sharp, with a noticeable but limited impact," Ottley said.

“The timing matters. The RBA lifted its wage forecasts earlier this month on the view that higher inflation outcomes and expectations feed into wage negotiations, and flagged ‘an increasing risk that higher inflation expectations will become embedded’.

“Our data shows no sign of that yet as we enter Q4 2026.

"That should provide some comfort for the RBA, though it has no shortage of other inflation concerns."

§ Slower wage bill growth and household labour income

CommBank’s compensation of employees proxy tracks growth in the total wage bill using internal salary transaction data, capturing both pay rises and changes in jobs and hours worked.

This month, the proxy eased to around 5.5 per cent in annual terms, from around 5.7 per cent where it sat through most of 2026.

The October figure is the softest pace since mid-2025 and is well below the peak of close to 10 per cent in 2022.

“The ABS measure has also come off, to around six per cent over the year to Q2 26 from a recent high of around seven per cent in mid-2025," Ottley said.

"The two series have tracked each other relatively closely over time, especially directionally, and our proxy points to a further easing in the official measure.

“Slower growth in the wage bill means slower growth in household labour income.

"That fits with the RBA’s view that softer consumption reflects the earlier easing in household income growth and points to a softer backdrop for consumer spending as higher interest rates bite, albeit from a resilient level.”

§ Wage growth diverges across the country

The CommBank Wage Insights series continues to show divergence in wage growth patterns across the country.

South Australia recorded the strongest wage growth in the nation at 3.8 per cent, up from 3.7 per cent in September, taking the state to the top of the table.  

Western Australia and the Northern Territory recorded the second strongest rate at 3.7 per cent. Tasmania’s wage growth eased to 3.5 per cent from 3.7 per cent, with the state recording the biggest fall in the country.

Victorian wage growth remains the weakest in the country, easing to 2.9 per cent from three per cent, and marks the state’s fifth consecutive month at the bottom of the table.

§ Labour supply continues to outpace demand

When it comes to jobs, the CommBank Labour Insights series indicates jobs growth of 18,000 positions in October, a touch below the ‘break-even rate’ required to keep the unemployment rate steady on an unchanged participate rate.

Ottley said labour supply is continuing to outpace demand, with employment growth expected to slow further.

“Labour demand remains somewhat resilient but the easing at the margin is consistent with a slowing economy, with five rate hikes this year and falling housing prices weighing on activity," he said.

“Labour supply has also continued to outpace demand, with participation around historically high levels, lifting the unemployment rate to 4.7 per cent in September.

“We expect employment growth to slow further and the unemployment rate to keep rising, to a peak of 5.1 per cent at end-2027."

Published 10 November 2026Spotted an error?Send the newsroom a tip

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Frequently asked questions

Are higher inflation expectations showing up in wages?
Harry Ottley said the RBA raised wage forecasts this month on the view that higher inflation outcomes and expectations feed into wage negotiations, and flagged an increasing risk of expectations becoming embedded. He said CommBank's data showed no sign of that yet entering Q4 2026.
What does slower wage bill growth mean for household income?
Harry Ottley said slower growth in the total wage bill means slower growth in household labour income.
How are interest rates and housing prices affecting activity?
Harry Ottley said five rate hikes this year and falling housing prices were weighing on activity. He said labour demand remained somewhat resilient but was easing, consistent with a slowing economy.
What is CommBank's unemployment outlook?
According to Harry Ottley, CommBank expects employment growth to slow further and unemployment to keep rising, peaking at 5.1 per cent by the end of 2027.