Expectations of an interest rate rise following the Reserve Bank’s November meeting have been dampened by news last week that consumer sentiment for the June quarter fell by a near-record amount.
Expectations of an interest rate rise following the Reserve Bank’s November meeting have been dampened by news last week that consumer sentiment for the June quarter fell by a near-record amount.
Despite the slump in consumer confidence, however, it’s likely any upswing in the next quarter could increase pressure on the Reserve for a November rate hike.
Wages growth, as recorded in the Labour Price Index, is another tool used by the bank in its decision-making on rates. For the June quarter, Western Australia lifted 1.3 per cent, while the other states only experienced an increase of between 0.6 per cent and 0.8 per cent.
“The Western Australian result was largely driven by the private sector, which recorded a rise of 1.4 per cent for the period,” according to the Australian Bureau of Statistics.
“WA also recorded the largest increase for the year through to June quarter 2006 for the private sector [5.1 per cent].”
Nationally, the index grew by 1.1 per cent in the June quarter, achieving annual growth of 4.1 per cent.
According to HBOS chief economist Alan Langford the hike in the wage price index should not alarm the Reserve Bank at present as it was not a major source of inflationary concern.
“There is no real significance of a spill over in growth from the resources and construction industries,” Mr Langford said.
“If you start seeing greater wages growth in other industries, then you might end up seeing a further cash rate increase in November.”
In terms of private sector wages, the index grew 1 per cent in the quarter and 4 per cent for the year, while public sector wages grew 1.2 per cent for the quarter and 4.4 per cent for the year.
Industries recording the largest increases for the period through the year to June quarter 2006 were electricity, gas and water (6.9 per cent), mining (5.9 per cent) and construction (5.5 per cent).
“Strong demand for skilled labour appears to be continuing with employers reporting increases are being paid to retain employees and match market rates,” the ABS said.
The August 2 interest rate rise of a quarter of one per cent was regarded as the major reason for the 16.2 per cent slump in the Westpac-Melbourne Institute consumer sentiment survey for June.
The high oil prices also contributed to the fall with 20 per cent drop in the proportion of people thinking it a good time to buy a major household item.
According to Mr Langford, a rebound in consumer confidence next quarter would be a further cause for a cash rate rise in November.
While there was an increase in the wages index, ABS’s seasonally adjusted figures for average weekly earnings showed employees total earnings in WA fell from $812.50 to $811.70, a fall of 0.1 of a percentage point, from the previous quarter.
This compares with the last 12 months where there has been a 2.7 per cent increase, seasonally adjusted.
Mr Langford said the fall was not such an issue, as employers were using methods such as bonuses rather than wage increases as an incentive to keep employees on board.
