SYDNEY (REUTERS) - Australia is set to raise the national minimum wage by the most in 16 years as families struggle with soaring living costs, a bold decision that also risks further stoking inflation.
Inflation is already problem enough, with the head of the country’s central bank taking the highly unusual step of going on television to warn that interest rates would have to rise a lot more to curb the upward march in prices.
Consumer confidence has already sunk to depths typically associated with recessions and inflation was not expected to slow until next year, heralding a tough few months ahead.
“The lift in interest rates comes at a time when soaring inflation is eating into worker pay packets,” said Mr Ryan Felsman, a senior economist at CommSec.
“The cost of just about everything is rising, including staples such as food, and the necessities of electricity, gas and petrol.”
From a pay packet point of view, it was thus a relief when Australia’s Fair Work Commission on Wednesday (June 15) lifted the mininum wage by 5.2 per cent, double last year’s award.
The lowest-paid employees will receive A$21.38 (S$20.58) an hour from July 1, up from the current rate of A$20.33, a decision which will affect more than two million workers.
“The low-paid are particularly vulnerable in the context of rising inflation,” said Justice Iain Ross, president of the Fair Work Commission.
With the unemployment rate at 3.9 per cent, the lowest in almost 50 years, Justice Ross said the decision “will not have a significant adverse effect on the performance and competitiveness of the national economy”.
The Australian Chamber of Commerce and Industry (ACCI) was not so sanguine, saying the decision would add about A$8 billion in expenses for businesses over the year.
Prime Minister Anthony Albanese, in power for a less than a month, said he “absolutely welcomes” the hike, which equates to A$40 more a week for a full-time worker.
The new centre-left Labor government backed an inflation-matching 5.1 per cent rise in minimum wages during its election campaign.
Yet inflation has not stood still with Reserve Bank of Australia (RBA) governor Philip Lowe warning it will likely accelerate to 7 per cent by the end of the year, heights not witnessed since 1990.
As a result, policy needed to respond decisively, which was why the RBA hiked rates by an outsized 50 basis points this month to 0.85 per cent, and why they might have to reach 2.5 per cent in time.
Goldman Sachs economist Andrew Boak warned the lift in the minimum wage meant there was a “material risk” the RBA could choose to hike by 75 basis points in July and/or August.
Financial markets are wagering rates could reach 3.75 per cent by Christmas and peak somewhere above 4 per cent.
