Ask for a pay rise, risk a rate hike: RBA

AUSTRALIANS could be slapped with another interest rate rise if they push wage demands too far, the RBA has warned.

Ask for a pay rise, risk a rate hike: RBA

WORKERS' demands for significant pay rises this year could trigger another hike in interest rates, the Reserve Bank has warned.

Pushing wage demands too far risked a resurgence in inflation, the bank said in minutes released today of its board meeting earlier this month.

They reveal the Reserve Bank is hopeful that an economic slowdown will take pressure off inflation.

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But should employees demand higher wages from employers in response to higher living costs, then the risks remain of another rate rise this year.

"The Board’s assessment continued to be (in June) that, on current policy settings, the necessary moderation in demand growth was likely to occur," the minutes said.

"It was therefore appropriate to maintain the current setting of monetary policy for the time being.

"However, should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage- and price-setting behaviour, the outlook, and the stance of (interest rates), would need to be reviewed," the minutes said.

Economists say interest rates are likely to stay on hold in coming months without any evidence of higher wage claims.

Wage rises outstrip inflation

Data released in May by the Australian Bureau of Statistics reveal wage increases are already rising faster than the official 4.2 per cent inflation rate. 

On average, full-time adult ordinary time earnings rose by 4.3 per cent for men and 5.0 per cent for women in the year to February.

As living costs rise sharply, workers around the nation are demanding pay rises of 5 per cent or more. Such pay rises would add to inflation and pressure on interest rates.

After eight official rate rises in three years, official rates currently sit at 7.25 per cent and home variable lending rates around 9.5 per cent, a 12-year high.

Petrol to bite harder

The central bank also warned that high petrol prices will add to inflationary pressure.

"High petrol prices are expected to fuel inflationary pressures in the June and September quarters, adding about a quarter of a percentage point to headline consumer price index (CPI) inflation each time.

"The currently observed level of petrol prices implied a rise in the automotive fuel component of the CPI of around 6 per cent in each of the June and September quarters,'' the minutes said.

"These increases would add about one quarter percentage point to the change in the CPI in each period.''

Headline inflation in the year to March grew by 4.2 per cent, and was well outside the central bank's preferred 2 to 3 per cent inflation target.

Core inflation for the same period rose to 4.25 per cent, its highest level since 1991.

With AAP