Australia Raises Minimum Wage 3.75%, Aiding Inflation Fight

(Bloomberg) -- Australia’s industrial relations umpire raised the national minimum wage by 3.75%, aiding the Reserve Bank’s efforts to return inflation to the 2-3% target by next year. 

The new minimum rate will be A$915.90 ($610) a week, or A$24.10 an hour, from July 1, Justice Adam Hatcher, president of the Fair Work Commission, said in Monday’s decision. That is well below last year’s 5.75% increase.

“We consider that it is not appropriate at this time to increase award wages by any amount significantly above the inflation rate, principally because labor productivity is no higher than it was four years ago,” Hatcher said. “We consider therefore that this increase is consistent with the forecast return of the inflation rate to below 3% in 2025.” 

The decision reflects an effort by authorities to restrain consumer prices after they came in hotter than expected in the first three months of this year. The RBA raised interest rates 13 times between May 2022 and November 2023 to 4.35%, its most aggressive tightening campaign in a generation.

Monday’s 3.75% increase is lower than the first-quarter Wage Price Index reading of 4.1% and in line with the 3.5-4% increase that economists had anticipated. It’s just above headline CPI of 3.6% and compares with the government’s declared aim that “real wages of Australia’s low-paid workers do not go backwards.”

The decision “supports our view that wage-sensitive services inflation should ease over 2H 2024,” economists at Goldman Sachs Group Inc. wrote in a note. “We continue to expect the RBA to commence a gradual easing cycle in November 2024.”

Citigroup Inc. reckons the outcome “will diffuse near-term hawkish bias,” predicting the RBA will stand pat for the rest of this year.

“Wages growth is still elevated given that productivity growth is stagnant, and it suggests that we will likely see a period of sticky wages and inflation outside the RBA’s target band,” Citi’s Faraz Syed said. “Thus we don’t see any near-term dovish risks either.”

Hatcher said the FWC took “into account that modern-award-reliant employees will shortly receive the benefit of the Stage 3 tax cuts and the budget cost-of-living measures, which are projected to increase real household disposable incomes over the next 12 months.”

The annual review is conducted by a panel of experts who set the minimum wage each fiscal year based on submissions from employer groups, unions and governments. Today’s decision directly affects about 2.6 million workers, or 20.7% of the labor force, Hatcher said.

(Adds comments from economists in sixth to eighth paragraphs.)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.