VIEW: Goldman: Minimum Wage Outcome And Weak Productivity Pose Hawkish Risks To RBA Outlook

Goldman Sachs note that “Australia’s Fair Work Commission (FWC) will announce its annual decision for minimum and award wage rates over the coming weeks. While there is significant uncertainty around the outcome, we expect to see a weighted-average increase of 5.25%.”

• “The increase will directly boost the wages of the ~20% of workers on these contracts and indirectly boost the wages of the ~10% of workers on Individual Arrangements and Enterprise Bargaining Agreements that have adjustable rates based on the FWC decision.”
• “Adjusting for productivity growth, we estimate that broader unit labour costs will remain elevated and annualize at around 5.5-6% through mid-2023. This is likely to keep services inflation elevated over H223.”
• “From the RBA’s perspective, our baseline wage forecasts remain consistent with our expectation for one more 25bp hike in July to 4.10%. That said, if the FWC increases minimum and award wages by more than our base case of 5.25% - for example by 7% as requested by unions - we expect the RBA to respond with an additional 25bp hike to 4.35% sometime in H223 to offset the additional upward pressure on unit labour costs. Further weakness in productivity growth also poses upside risks to policy rates.”