Interest rates: Minimum wage rise sparks warning of two more hikes by RBA

Workers received a jump in their pay packets in May, just months ahead of the Fair Work Commission’s decision to lift the minimum wage.

Newly released figures from Commonwealth Bank found wages rose 0.8 per cent over the quarter and are now up 3.1 per cent for the year.

This was despite a spike in the unemployment rate with the number of Australians employed fell by 19,000 people in April, according to the Australian Bureau of Statistics (ABS).

Commonwealth Bank economist Harry Ottley says wages growth has remained remarkably stable over recent months.

“There is still no clear sign that higher inflation is translating into stronger wages growth, with labour market conditions remaining relatively balanced,” he said.

The Commonwealth Bank predicts the number of employed Australians will change in May when the official figures are released and 23,000 new people will have a job.

“Employment growth was steady in May, and at this early stage the labour market appears resilient in the face of higher interest rates and the impacts of the Middle East conflict,” Mr Ottley said.

“However, the rise in the unemployment rate suggests some potential weakness.

“As the economy slows, we expect employment growth to remain subdued through 2026, with the unemployment rate edging higher to a peak of around 4.6 per cent.”

Minimum wage to rise

At the start of June the Fair Work Commission announced a 4.75 per cent increase in the minimum award.

The change will affect 2.8 million people whose pay is set by a modern award, or about 20 per cent of the workforce.

Following the announcement the minimum wage will rise to $26.44 per hour (from $24.95), or $1004.90 per week (from $948).

This applies to workers not covered by a modern award or an enterprise agreement.

The changes will come into effect on July 1.

Mr Ottley says the big pay bump in July will lift momentum in wages.

In coming months, this is expected to include a large increase to wages for NSW nurses, although the exact timing remains uncertain.

“As a result, we should see some upward pressure on wages growth in coming months, but for now wage inflation remains contained,” said Ottley.

AMP economist My Bui warns while it is understandable for the Fair Work Commission to avoid negative real wage growth for employees, due to the sheer volume of Australians impacted it could lift inflation.

“Tuesday’s decision is only expected to add less than 0.6 percentage points to annual wages growth next year, the risk is that wage pressures spill over into other parts of the private sector,” she said.

“Wage pressures will add to already sticky services inflation, as businesses pass on higher labour and input costs, which have remained elevated amid rising goods prices.”

CreditorWatch chief economist Ivan Colhoun says the larger-than-expected rise will add cost pressure to businesses, particularly in labour-intensive sectors.

“While the larger than expected minimum wage increase will be welcome for the lowest paid, many businesses and the RBA are unlikely to be as happy,” he said.

“The rise will add to business costs at a time of already elevated inflation, higher interest rates and at least a temporary surge in fuel costs.

“Four sectors account for over two thirds of this employment: Retail, Hospitality, Healthcare and Social Assistance, Administrative and Support Services.”

Ms Bui says there will now be two more interest rate hikes due to the minimum wage increase.

“As a result, we are now forecasting another rate hike in November, taking the peak cash rate to 4.85 per cent for this cycle. There is also a risk that the upcoming hike comes sooner, in June rather than August,” she said.