VIEW: Westpac Thinks RBA Will Be “Comforted” By Wage Decision

The Fair Work Commission decided to increase the minimum wage by 3.75%, moderately above inflation, taking into account inflation and tax cuts and higher superannuation contributions. As FWC estimates that around 11% of the wage bill is based on awards or the minimum wage, Westpac calculates that Q3 WPI will rise 0.7% q/q and annual wages growth will be 3% y/y in Q4, below the RBA’s May forecast.

• “The RBA would be comforted by the decision … We see this as a balanced decision that provides are reasonable real wage increase for workers facing cost of living pressures while ensuring wage outcomes are more inline with labour productivity, especially if we see the improvement in productivity Westpac, the Treasury and the RBA are all expecting.”
• “There is likely to be some flow on effect to other wage negotiation streams, but we have already seen the pace of wage outcomes from individual arrangements moderate meaningfully while wage outcomes from enterprise agreements appear to have already peaked. However, we are going to wait for June quarter update on the WPI before we make any significant changes to our wage forecasts just to ensure those trends are continuing.”