Are low paid wage rises an inflation risk? Economy roundup

The extent to which businesses will have to give a pay rise to the lowest paid employees could all depend on the Government’s response to two questions asked by the wages umpire today.

The first is whether Kevin Rudd’s call for wages restraint should apply to the 1.2 million workers covered by minimum pay scales set by the Australian Fair Pay Commission.

AFPC chairman Ian Harper says the current high inflation environment could be a reason to award a smaller pay rise when it convenes in July this year – to do otherwise risks simply forcing higher interest rates, which would leave workers back where they started.

The second question is whether the AFPC should take into account tax cuts that will apply from the middle of this year in determining the need for a pay rise.

It will be a thorny task for the Government to negotiate these two questions given their strong anti-inflationary rhetoric of recent times, but the answer it gives could make a big difference to many a business owner’s wage costs.

At the other end of the economy – companies floating on the sharemarket – new data released by PricewaterhouseCoopers shows smaller caps don’t do as well as their bigger cousins.

In 2007, large cap floats achieved a pricing premiums of around 26% over small cap floats (those valued at less than $100 million), the report says.

And they also tend to do worse after floating – in 2007 small cap floats returned a negative 5% to investors, while the S&P/ASX300 Industrials Index rose by 3.5%.

On today’s markets, at 12.45pm the S&P/ASX200 is up 0.7% on yesterday’s close to 5662, and the Australian dollar is trading at US92.73, up on yesterday’s US92.41c close.