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The Fair Work Commission (FWC) decided to increase the minimum wage and all modern award wage rates by 4.75% in its 2026 Annual Wage Review, coming into effect from 1 July 2026. This is larger than the 3.50% increase in 2025 and the 3.75% increase in 2024, but smaller than the 5.75% increase in 2023.
The FWC reports that this decision will directly affect around 21.1% of the workforce who are paid at the applicable minimum wage/award. This will have a larger impact on industries more reliant on awards, including health care and social assistance, retail trade, accommodation and food services, and administration and support services (which includes of labour hire workers).
We had pencilled in a lift of 4.25% in 2026, so today’s announcement was only slightly above our expectation. Our back-of-the-envelope calculations suggests this will have only a very small direct impact of around +0.1ppt to our forecast for the Q3 2026 WPI, and so it will not substantially add to the inflationary impulse. We will publish our updated forecasts later this week after the release of the Q1 National Accounts.
While the direct impacts of the decisions are known with some degree of confidence, the indirect impacts are harder to gauge. To the extent that today’s decision acts as a benchmark across wage setting in the economy, there is a risk that inflation expectations remain elevated for longer, making the RBA’s job harder. Indeed, if EBAs respond and, on average, wage outcomes rise by 0.5ppt (the amount of the upside surprise), this could add 0.2ppt to growth in WPI in Q3 2026.
That said, the gradual easing in the labour market and slowdown in the economy will reduce this risk. However, this is something the RBA will remain cognisant of.

Further details on decision

The FWC reports that this decision will directly affect around 21.1% of the workforce who are paid at the applicable minimum wage/award. However, the prevalence of part-time/casual work and lower wage rates with awards means that this stream’s share of the national ‘wage bill’ is even lower, at around 11.2%. This distinction matters for the Wage Price Index (WPI), which measures the underlying ‘price’ of labour by fixing the job composition and weighting by the wage bill rather than employee counts.
The FWC also announced additional changes to certain award rates – specifically, increasing the lowest wage rate applicable to ongoing employment in modern awards (the C13 level) up to the next-lowest rate (the C12 level) in a staged manner.

The indirect risk likely managed by the slower economy

As we noted, besides the direct impact of the decision to those on awards, there can be indirect effects that flow through to other collective and individual bargaining arrangements. Some of these will pass on the decision automatically and in full – for example, the Federal Government’s submission to the review noted that around 10% of employees on current federal enterprise agreements will fall under this category.
While the minimum wage and award decision sets a kind of ‘benchmark’ for wages across the economy, the flow-through to other enterprise and individual bargaining can depend on other factors, such as how tight the labour market is and the wage trends already in train.
The unemployment rate has lifted from around 4% to 4½% over the past year, and wages growth in individual bargaining streams has continued to trend gradually lower as a result. While momentum in enterprise bargaining has held up a bit better, this was due to several state-based agreements being implemented after extended bargaining period.
We are also looking into a challenging period of elevated inflation, higher interest rates and weaker economic growth, in large part driven by the Middle East shock. We expect this will introduce more slack into the labour market over the rest of 2026 and 2027.
Today’s decision for a larger increase in the minimum wage and awards will go some way against protecting more vulnerable workers’ wages against the inflation shock, but the outlook is still defined by a weaker economy and labour market, which will limit the bargaining power for many workers. Hence, do not see today’s decision as having a material consequence for the inflation outlook at this stage, but we will be closely monitoring how wages growth evolves across the economy.

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