Minimum wage boost unlikely to worry Reserve Bank

Minimum wage decision

Source: Jim Chalmers

A pay bump for the lowest-paid workers is unlikely to throw the Reserve Bank of Australia’s inflation fight off course after landing broadly in line with economists’ expectations.

Millions of workers on minimum and award wages will get a 3.75 per cent pay rise from July following the Fair Work Commission’s annual decision.

Based on a new hourly rate of $24.10, full-time workers will take home an extra $33 every week.

With inflation running at 3.6 per cent in the year to March, that means pay packets will grow a little faster than consumer prices for the one in five employees affected.

Economists were expecting the minimum wage to go up by anywhere between 3.5 per cent and 4 per cent – above the percentage increase suggested by employer groups, but lower than requested by unions.

CommSec senior economist Ryan Felsman said the decision would be welcomed by the central bank as it would diffuse the risk of a wage-price spiral, which is when wages chase prices in a feedback loop.

“While the RBA has forecast annual wages growth of 3.8 per cent by the end of 2024, the outcome supports the view that wage-sensitive services inflation should ease later this year,” Felsman wrote in a note.

Unions wanted an increase of 5 per cent, while business groups recommended between 2-3 per cent.

Fair Work Commission president Adam Hatcher said it was not an appropriate time to raise wages significantly above the inflation rate because labour productivity was stagnating.

The fact workers were in line for the stage-three personal income tax cuts and other cost-of-living support was also factored in, as well as the July 1 boost to the superannuation guarantee contribution.

Council of Small Business Organisations Australia chief executive officer Luke Achterstraat said the decision would pile more pressure on small businesses “already weathering a perfect storm”.

“The levy has broken for many small businesses with rising energy, rent, insurance and borrowing costs,” he said.

Australian Council of Trade Unions secretary Sally McManus said when workers had more money to spend, it would stimulate local businesses and drive economic growth.

“[Monday’s] decision is a win for workers, their families, and the broader Australian economy.”


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