In a bold attempt to address the escalating cost of living, Australia is set to increase its minimum wage by 5.75% starting from July 1. This decision, however, has stirred up concerns among businesses and some economists, who fear it might aggravate inflation and consequently, push interest rates higher.
The Fair Work Commission (FWC), an independent body, announced on June 2 that workers under wage agreements tied to minimum wage movements will receive a 5.75% pay hike. A technical reclassification of the national minimum wage will see the lowest-earning workers getting an 8.6% raise, according to union representatives. This will directly affect approximately 0.7% of the workforce.
With this resolution, over two million workers are poised to see a wage increase. This comes amid projections that the wage growth could surpass the 4% peak predicted by the Reserve Bank of Australia (RBA), according to Su-Lin Ong, Chief Economist at RBC Capital Markets. The subsequent rise in inflation may necessitate higher interest rates.
Despite wage growth hitting a decade-high of 3.7% last quarter, it has lagged behind projections. RBA Governor, Philip Lowe, cautioned that weaker productivity growth could pose risks of wage escalation.
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Experts, including Taylor Nugent from the National Australia Bank, suggest the decision tips the scale towards a peak in Australian interest rates. Futures trading has already predicted a certain increase in the current cash rate from 3.85% to 4.1% by August, accompanied by the possibility of further hikes.
The FWC is confident that the increase won’t fuel any wage-price spiral. FWC President Adam Hatcher said the decision will benefit part-time workers and predominantly female workers. However, Andrew McKellar, Chief Executive of the Australian Chamber of Commerce and Industry, expressed concerns about the additional A$12.6 billion (S$11.1 billion) costs for businesses already struggling with supply chain disruptions and high energy prices.
The Australian Council of Trade Unions embraced the decision. Secretary Sally McManus said, “People are skipping meals, avoiding the doctor and dreading their next bill… Today’s increase means these workers can keep their heads above water and not have to cut back even further.”
(Based on an article from AsiaOne)