Australia raises minimum wage as cost of living rises

Australia will raise the minimum wage by 5.75% from July 1 as families struggle with rising costs of living, but businesses and some economists say the decision risks further stimulating inflation and interest rates. .

The independent Fair Labor Commission (FWC) on Friday decided on a 5.75% wage hike for workers whose wages are linked to changes in the minimum wage. It will also technically reclassify the national minimum wage, with unions saying the lowest-paid workers, about 0.7% of the workforce, will see an 8.6% increase.

In total, the FWC’s decisions will affect the wages of more than 2 million workers.

Surin Ong, chief economist at RBC Capital Markets, said the hike could push wage growth past the Reserve Bank of Australia’s peak forecast of 4%, which could necessitate higher interest rates to combat inflation. said.

“Following several recent developments, including the outcome of today’s minimum wage decision, we added an additional 25bp increase to the RBA’s profile in June, with another 25bp increase scheduled for July. ”

Aggregate wage growth, which accelerated to a 10-year high of 3.7% last quarter, has so far been weaker than expected and RBA Governor Philip Lowe has Warns of swing risk.

National Australia Bank economist Taylor Nugent also said the decision would further skew the risks towards a higher peak in Australian interest rates.

The futures market is already betting, with the cash rate currently at 3.85% and set to reach 4.1% by August, with the risk of another rate hike. They also see a 33% chance that the RBA will surprise another quarter of a percentage point next week, following April’s high inflation report.

cost of living crisis

FWC Chairman Adam Hatcher said the committee was confident the decision would not cause or contribute to an upward spiral in prices.

“We are confident that the hikes we have decided to make will only make a modest contribution to overall wage growth in 2023-24,” Hatcher said, adding that the measures would benefit part-time workers and mainly women. I added that it would.

Australian Chamber of Commerce CEO Andrew McKellar is less optimistic, with an estimated A$12.6 billion additional costs for businesses already facing supply chain problems and higher energy prices. said it would be.

The Australian Trade Union Council welcomed the decision.

“People are skipping meals, avoiding doctors and fearing the next bill,” said Secretary Sally McManus.

“Today’s increase means these workers can keep their heads above the water and don’t need to cut further.”

– Reuters