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Poppy Johnston and Andrew Brown

Labor rejects claim wage rise to blame for rates hike

Finance Minister Katy Gallagher says productivity must increase to have sustainable wage increases. Photo: AAP

The federal government has rejected claims the latest hike in interest rates was partially driven by its decision to back wage rises for low-paid workers.

The Reserve Bank of Australia on Tuesday hiked the key cash interest rate to 4.1 per cent in another blow for mortgage holders.

The hike marks the 12th increase since May last year when the central bank first started jacking up interest rates.

Finance Minister Katy Gallagher said inflation was staying higher for longer than anticipated, but the recent rate hike was not due to the federal budget or increase to the minimum wage.

“We’re in a very difficult environment, we’re not pretending otherwise, we know this is really hitting households hard,” she told ABC Radio.

“Our job as managing the budget as the government is to make sure that the decisions we take don’t make that job of the Reserve Bank’s harder.”

The Reserve Bank indicated concern about the gap between wages and productivity levels following the latest interest rate rise.

Senator Gallagher said productivity was an urgent area to address.

“We want wages to get moving, but we also acknowledge that we have a significant productivity challenge that we’ve inherited,” she said.

“We accept that in order to have sustainable wages growth into the future, we have to deal with the productivity challenge.”

But deputy Liberal leader Sussan Ley said budget forecasts on interest rates were already out of date following the latest rise.

“No one now feels better than they did a year ago. The economic indicators are worse and with this rate rise, someone with a $750,000 mortgage is having to find around $22,000 extra a year,” she told ABC Radio.

“(The treasurer) had the cash rate in those budget papers at 3.85 per cent until 2024, and unfortunately, that’s already not the case, so we do need that proper plan for inflation.”

Ms Ley said more needed to be done in order to deal with productivity.

“Wage rises without productivity increases equals price rises, and that means more inflation, and it means higher interest rate,” she said.

Asked if the RBA delivered the increase because government-backed wage rises risk driving high inflation, Home Affairs Minister Clare O’Neil said that was absolutely not the case.

“It’s (the rate decision) not a government decision,” she told Seven’s Sunrise on Wednesday, adding she knows families are doing it tough.

“What I want them to know is that the Albanese government is doing everything within our power to make sure we can provide as much cost-of-living relief as we can.”

Opposition finance spokeswoman Jane Hume said in terms of the economy, the government had one foot on the accelerator while the RBA had one foot on the brake.

“The RBA governor said that without corresponding productivity gains, those wage rises will simply be more inflationary and we can expect further interest rate rises,” she said.

“Of course they will be forced to raise rates again.”

Economic growth data for the March quarter is also set to be released on Wednesday.

Based on the string of clues revealed by the Australian Bureau of Statistics in the lead-up to the report, ANZ economists are anticipating a 0.4 per cent lift across the quarter and a 2.5 per cent annual rise in gross domestic product.

The 25 basis point hike on Tuesday leaves the cash rate at its highest level since April 2012.

– AAP

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