Economy

Oz min wage boost unlikely to cause inflation blowout: Shane Oliver

Thu 16 Jun 22, 10:36am (AEST)
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Key Points

  • Speaking to Market Index News, AMP’s Chief Economist said the minimum wage increase is unlikely to cause inflation blowout
  • Some businesses will do it tough, but Oliver posits high demand for workers mean most would have to pay more anyway
  • 5% increase of extra $40 a week only reflects 0.5% to wages growth

AMP’s Chief Economist Shane Oliver has told Market Index the Fair Work Commission’s Wednesday decision to boost the Australian minimum wage by 5.2% is unlikely to lead to an inflation blowout.

Oliver noted the increase equals 0.5% to wages growth compared to 2021. 

“[The increase] only adds about 0.5% to wages growth compared to what they got last year and I don’t see it causing a…problem,” Oliver said.

“It does make life a little bit more difficult for the Reserve Bank but I don’t think it’s going to cause an inflation blowout on its own.” 

(Source: ABS) Annual wage growth in Australia up to March 2022
(Source: ABS) Annual wage growth in Australia up to March 2022

Issues could arise from knock-on effects

AMP’s top dog did, however, note the possibility of a ‘contagion’ effect into other industries outside of services and retail where the minimum wage is most commonly paid out. 

“The problem would arise if this leads to escalating expectations of wages growth such that it reinforces other claims for other wage increases…in the years to come,” Oliver noted.

There was a larger caveat on Oliver’s radar: the issue of staff shortages nation-wide right now. 

Oliver further put it to Market Index small businesses were likely to end up having to boost pay-rates anyway in order to lure staff in. 

“Given the shortage of workers in Australia they’d have to pay that anyway…there’s a shortage of labour getting workers in their cafe or hotel.”

Bodies for affected end of town mixed on news

The Australian Retail Association (ARA) had previously called for a rise of 3.2% to the minimum wage, 2% lower than that determination from the FWC yesterday. 

The Australian Council of Trade Unions, meanwhile, angled for 5.5%.

Australian Association of Convenience Stories CEO Theo Foukkare elsewhere publicly stated many convenience stores pay over the minimum wage. 

This is supported by claims from Oliver the absolute minimum wage is only paid to some 200,000 people in Australia. 

“These minimum wages are found in the services and retail sector and they’d probably have to pay a similar increase anyway,” Oliver reiterated.

“Some businesses will have to do it tough but I think they’ll be a minority. The real issue here is getting inflation back.”

(Source: TradingEconomics) Australia's inflation rate since 2019 visualised as a line chart
(Source: TradingEconomics) Australia's inflation rate since 2019 visualised as a line chart

 

Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication. Email Jon at [email protected].

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