The upcoming mandatory wage increase could be a “problem for inflation” and a “huge cost for the average business”, an expert has warned as inflation remains elevated.
The Fair Work Commission is expected to hand down its Annual Wage Review decision in the coming weeks, with the Australian Council of Trade Unions pushing for a six per cent pay rise for minimum wage workers..
It comes as inflation remains elevated at 4.2 per cent, prompting concerns over the impact of such an increase.
AMP’s deputy chief economist Diana Mousina said the upcoming wage review could heap pressure on already too high inflation.
“We do get the minimum wage decision due in a few weeks, which not just affects the minimum-wage but also awards and enterprise bargaining agreements,” she told Business Now.
“So if that’s more elevated than expected – an above-inflation type increase – that could lift wages growth again, which would be a problem for inflation because that’s a huge cost for the average business.”
The ACTU said a six per cent pay increase would shield low-paid workers from high inflation while lifting the minimum wage to $26.45 per hour.
“One in four workers in Australia rely on minimum award wages, particularly those working in hospitality, retail, fast food, administration, and care industries,” the ACTU said in a statement on Wednesday.
Inflation data on Wednesday revealed the headline rate had sunk to 4.2 per cent – well outside the Reserve Bank of Australia’s two to three per cent per cent target band.
Trimmed mean inflation – the middle 70 per cent of price changes core to the RBA’s decision – lifted to 3.4 per cent, its highest point since September 2024.
Despite concerns over the potential impact, Labor has called for an above inflation pay rise to be handed down by the FWC.
Capital Economics head of APAC Marcel Thieliant warned this would be “disastrous”.
“If they’re calling for a hike of above inflation this year, that would be disastrous because on our forecast we have inflation averaging five per cent this year,” he told Business Now earlier in the year.
“If they want to beat that, they need to give an extraordinarily large minimum wage hike that would add to this inflationary spiral that we’re now seeing.”
The call for an above inflation pay rise comes as Australia’s productivity growth remains at one per cent per year.
Mr Thieliant said this made offering a real wage increase challenging.
“Even if you use last year’s (inflation) measure (of 3.8 per cent), it’s a bit difficult to justify an above inflation pay hike because productivity growth is still very weak,” he said.
Employers have called for a more modest wage increase and warned anything higher than inflation could add to price pressures.
The Australian Chamber of Commerce and Industry backed a 3.5 per cent increase, while the Australian Restaurant and Café Association proposed a pay bump between 3.5 per cent and four per cent.
ACCI’s chief executive Andrew McKellar said the ACTU’s proposed five per cent bump was “completely unjustified”.
The FWC last year lifted the minimum wage by 3.5 per cent when inflation was around three per cent.
Australians were delivered higher wage bumps in previous years.
Fair Work delivered a 3.75 per cent bump in 2024, a 5.75 per cent increase in 2023 and a 4.6 per cent hike in 2022.