Employment Minister Tony Burke stands by his recent comments that he doesn’t believe wage growth is about to fuel inflation, after Reserve Bank governor Philip Lowe warned against excessive wage rises.

Dr Lowe told an event on Tuesday that a steady state of wage growth should be around 3.5 per cent, including one per cent labour productivity.

While not commenting directly on the Fair Work Commission’s decision to award low wage earners a 5.2 per cent increase this year, Dr Lowe said there can be larger wage increases in some parts of the labour market for a short period of time.

“But if wage increases become common in the four and five per cent range then it is going to be harder to return inflation to 2.5 per cent,” he said.

“There we are in a world where the economy would have to slow more and the unemployment rate would need to rise.”

However, Dr Lowe has been concerned for a number of years that the rate of wage growth in the two to 2.5 per cent range was too low.

Mr Burke was asked on ABC radio whether he regrets supporting the Fair Work Commission’s pay increase in light of Dr Lowe’s comments.

The minister said the wage price index across the whole economy has been running at 2.4 per cent.

“So the comments yesterday from the governor of the Reserve Bank still call for wages to get moving beyond where they have been,” Mr Burke said.

“Three and a half per cent that he’s referred to is still a significant improvement on where things have been for the flatlining wages growth over the last decade.”

Asked if he was wrong to say that inflation is not being driven by high wage growth, Mr Burke replied, “Well, at the moment, we don’t have high wage growth.”

“So nothing can be driven by high wage growth at the moment because we don’t have it.”

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)