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RBA spotlights inflation risk of higher wages

Minutes from the Reserve Bank of Australia's June board meeting revealed a risk of persistently high inflation as employees demanded a rise in wages to combat living costs.

The minutes stipulated that should expectations of higher inflation become entrenched, the task of returning inflation to target would become more difficult.

It would also come at a higher cost in terms of lower levels of economic activity and employment.

Though the board did add that raising the cash rate by 50 basis points at the next meeting could help mitigate this risk.

"For those jobs with wage changes, the average size of wage rises had increased to its highest level since 2014, while the share of jobs that received a wage rise of 4% or more had also increased," the minutes stated.

"It's also probable that adjustments to public sector wages policies and the upcoming Fair Work Commission ruling on new minimum and award rates would result in faster wages growth for affected workers in the period ahead."

Even while measures of long-term inflation expectations remained in the 2-3% target band, the boards members cautioned that a sustained period of higher inflation could result in an ascension of inflationary expectations.

Despite these concerns, ACTU secretary Sally McManus said: "Wage claims are always considered in the context of cost of living increases and broader economic conditions, but with profits at record levels, productivity high and labour's share of GDP at an all-time low, working people cannot continue to see real pay cuts after a decade of record low wage growth under the previous government."

As previously reported by the Financial Standard, The Fair Work Commission recently announced it would raise the minimum wage to 5.2% come July.

A corresponding Fair Work Commission statement said: "The Panel decided to provide a proportionately higher increase to low-paid employees noting that the present circumstances warranted an approach which affords a greater level of support to the low-paid while seeking to constrain inflationary pressures."

Read more: InflationFair Work CommissionReserve Bank of AustraliaACTUSally McManusWage increase