Australian Council of Trade Unions secretary Sally McManus,who had lobbied for a 7 per cent increase,said the pay rises were critical.

“Today’s 5.75 per cent increase for award workers means they can just keep up with the cost of living. It is a matter of survival,” she said.

“We call on the Reserve Bank not to raise interest rates again next week as this would obliterate the raise low-paid workers have just gained.”

The Fair Work decision means the hourly rate for Australia’s lowest-paid workers will increase to about $23.23,lifting the weekly minimum wage from $812.60 to $882.80.

Fewer than 1 per cent of the nation’s workers (0.7 per cent) are paid the national minimum wage,but about 20.5 per cent of workers are paid minimum wage rates on modern awards.

The 5.75 per cent increase is technically the largest in 41 years – since a total 7.1 per cent hike over 1982.

But Fair Work Commission president Adam Hatcher said the decision was made in light of cost-of-living pressures being felt by Australia’s lowest-paid workers and would not have “discernable macroeconomic effects”.

“We are confident that the increase we have determined will make only a modest contribution to total wages growth in 2023-24,and will consequently not cause or contribute to any wage-price spiral,” he said.

Ahead of the decision,ANZ lifted its forecast for the peak of interest rates to 4.35 per cent,saying an increase to the cash rate in June was possible,followed by another in August.

“We no longer see 4.1 per cent as sufficient to bring inflation back to the target in a reasonable period of time,” ANZ’s head of Australian economics Adam Boyton said.

AMP chief economist Shane Oliver said the wage decision had potential flow-on effects given the tightness of the jobs market,and wage growth could exceed the RBA’s comfort zone of 3 to 4 per cent.

Coupled with poor productivity,he said this would fuel RBA concerns that inflation might stay higher for longer,increasing the risk of a 0.25 percentage point rate rise in June or July.

Capital Economics’ head of Asia Pacific,Marcel Thieliant,said productivity growth remained “dismal”,which meant the cost of employing workers would be far too high to help the RBA reach its inflation target band of 2-3 per cent.

“The upshot is that we expect the RBA to lift the cash rate by 25bp[0.25 percentage points] in both June and July,” he said.

But Commonwealth Bank’s head of Australian economics,Gareth Aird,said the Fair Work decision seemed to be in line with the RBA’s wage forecasts.

“We believe the domestic economy is now showing sufficient signs of slowing and we expect the RBA board will judge that leaving the cash rate on hold is the appropriate policy move in June,” he said.

Opposition employment spokeswoman Michaelia Cash said the Fair Work decision was appropriate,but families were continuing to struggle with cost-of-living pressures.

“The cost-of-living crisis under the Albanese government is continuing to hurt Australians – we have high inflation,higher electricity prices,higher interest rates,higher mortgage repayments and falling real wages,” Cash said.

UTS economist Professor Tim Harcourt,a former member of the Fair Work Commission’s wage review panel,said the increase showed the industrial umpire clearly saw its role as safeguarding the living standards of Australia’s lowest paid.

However,he said that in terms of macroeconomic effects,the focus should be on public sector negotiations with Labor governments across the Australian mainland,with unions potentially looking to the decision as a benchmark for bargaining.

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