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Strong pay rises will feed further inflation, Australia PM says

Strong pay rises will feed further inflation, Australia PM says

Strong pay rewards could feed into inflation and push up the cost of living even further, Australian Prime Minister Scott Morrison said, signaling wages would remain low under his government as flaring inflation becomes a key issue ahead of an election this month.

Morrison’s statement could prove expensive at a time when consumer price gains, of 5.1%, are at their highest since 2007 but wages growth has yet to materially pick up, adding to pressures on household balance sheets.

Opposition Labor leader Anthony Albanese, who is leading in opinion polls ahead of the May 21 vote, has called for wages growth to match inflation, from below 2.5% now, attracting criticism from Morrison who said a 5.1% pay increase “can feed into inflation, which pushes up interest rates and pushes up the cost of living even more.”

Unemployment is falling, prices are rising but wages growth still weak

A combination of rising cost of living and prospects of faster rate increases have already spooked Australia’s heavily indebted households, sending consumer sentiment to the weakest since August 2020. The country’s central bank last week raised the cash rate by a greater-than-expected 25 basis points to 0.35% and signaled further increases are in the offing.

Australia’s Hawkish Pivot Jolts Markets During Election Campaign

Australia’s Fair Work Commission will likely announce its annual wage review in few weeks’ time. The current national minimum wage is A$20.33 ($14.06) per hour. Albanese said a 5.1% increase would be equal to $1 an hour or “two cups a coffee” a day.

“The cost of everything is going up,” he said in a televised debate Wednesday night. “People are doing it tough. Those people who are on minimum wages, if the increase is less than the inflation rate, then what that means is they will be getting a real wage cut and they deserve better than that.”

Morrison said he welcomed pay rises for all workers but pointed to small businesses who are “doing it incredibly tough. They are the ones who employ people. And we want to make sure they can keep employing people.” BM


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