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9 cents more for a latte: Minimum wage boost would barely hike prices

Man pouring coffee and 10 cent coins
Raising minimum wage by around 5 per cent would boost the price of your daily coffee by 9 cents, according to a new report. (Source: Getty)

A boost in the minimum wage in line with inflation would add around 9 cents to the cost of your $4 flat white, according to a new report.

Last week, the major parties clashed over the prospect of a $1 lift in the minimum wage to keep pace with soaring inflation.

Both the Liberal Party and business groups argued such a large increase to the minimum wage would fuel inflation and drive up the cost of living.

However, a new Australia Institute report rejected these claims.

According to the think tank’s research, boosting workers’ wages by 5 per cent would lead to an increase in prices across the economy of around 2 per cent.

That's because wages only account for 25.3 per cent of business costs in Australia.

As such, a 5 per cent increase in the average firm's total wage bill would only push up costs by 1.3 per cent.

Even in industries where wages take up a larger portion of a business’s expenses, such as retail and hospitality, the inflationary impact of a 5 per cent wage hike would still be minimal.

In food and beverage businesses, where wages account for 35 per cent of expenses, the increased cost passed onto customers should only be 2.3 per cent.

This amounts to around:

  • 9 cents extra for a $4 cup of coffee

  • 16 cents extra for a $7 schooner of beer

  • 46 cents extra for a $20 pub meal

Richard Denniss, chief economist at the Australia institute, also said these calculations were made on the conservative assumption that all workers would get a 5 per cent pay rise, not just those who depended on the minimum wage.

Denniss conceded there would be a “small increase in inflation” caused by boosting wages by 5 per cent.

However, he said it would be below the RBA’s target range.

“And, of course, if the wage rise was restricted to those on the minimum wage, the impact on costs would be much smaller still,” Denniss said.

“There is just no way that a 5 per cent increase in all wages, let alone a 5 per cent increase in the minimum wage alone, can lead to price increases of anything like 5 per cent,” he said.

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