SYDNEY, June 2 Reuters Australia will raise the minimum wage by 5.75 from July 1 as families grapple with soaring living costs, a decision that businesses and some economists say risks further stoking inflation and interest rates.

The independent Fair Work Commission FWC on Friday decided on a 5.75 pay rise for workers on awards with wages linked to movement in the minimum wage. It also made a technical reclassification for the national minimum wage, which the union says will take the increase to 8.6 for the lowestpaid employees, about 0.7 of the workforce.

In total, the determination from the FWC would affect wages for more than 2 million workers.

SuLin Ong, chief economist at RBC Capital Markets, said the hike could push wage growth above the 4 peak forecast by the Reserve Bank of Australia and require higher interest rates to combat inflation.

Following several recent developments, including the outcome of today39;s minimum wage decision, we are adding a 25bp hike to our RBA profile in June and another 25bp in July.

Aggregate wage growth which accelerated to a decadehigh of 3.7 last quarter has so far lagged forecasts, with RBA Governor Philip Lowe warning of upside risks to wages from weak productivity growth.

Taylor Nugent, an economist at National Australia Bank, also said the decision skews the risks further in the direction of a higher peak for Australian interest rates.

Futures have already moved to wager the current cash rate of 3.85 is certain to…