12/11/2008 - 10:02

WA leads nation in wages growth

12/11/2008 - 10:02

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Western Australia had the nation's fastest annual wages growth of more than 5 per cent in the year to September, but it has started to fall away.

Western Australia had the nation's fastest annual wages growth of more than 5 per cent in the year to September, but it has started to fall away.

The exact figure of 5.1 per cent was below the June's 5.6 per cent yearly increase according to figures from the Australian Bureau of Statistics.

The struggling NSW economy had the slowest annual wages inflation pace, of 3.7 per cent in September.

News about lower wages pressures in Australia's biggest state came a day after the NSW mini-budget projected a slower growth of 1.25 per cent in 2008/09.

Nationally, private sector workers were better off, enjoying an annual wages increase of 4.2 per cent, seasonally adjusted, compared with 3.7 per cent for public sector employees, the ABS said.

From a naitonal perspective, this constrained rise in wages points to a slowing economy and more interest rate cuts, economists say.

Analysts say the Reserve Bank of Australia is more concerned about rising unemployment than wage inflation, as it tries to steer the nation through the carnage on world financial markets.

Labour price worries were put at ease today after ABS data showed a 0.9 per cent, seasonally adjusted, rise in wages during the September quarter.

The September quarter labour price index increase was marginally lower than market forecasts of a 1 per cent rise, and below the June quarter climb of 1.1 per cent.

It was the slowest quarterly increase for two years, despite widespread reports of skilled labour shortages and unemployment hitting a 33-year low in February.

Labor costs rose by 4.1 per cent in the year to September, the same annual pace as the year to March and June, as compared with 4.2 per cent a year before.

HSBC chief economist John Edwards said the wages data "eliminated" RBA concerns that inflation would spark an acceleration in wages growth.

"With the Australian economy now slowing sharply and employment growth easing, policymakers need no longer bother about wages growth," Dr Edwards said.

"They have a whole new set of anxieties."

National Australia Bank head of economics Jeff Oughton said the central bank was more worried about a rising jobless rate.

"It's no longer a war on inflation, it's a war on jobs," he said.

ANZ economist Riki Polygenis said wage pressures were likely to ease as the economy slowed.

"Wages growth is expected to moderate further over the next few years as cash-constrained firms become more reluctant to increase wages and as employees feel less power to demand large wage increases," she said.

Commonwealth Bank of Australia senior economist Michael Workman said wages inflation was a lower priority for the RBA than navigating Australia through the global economic turmoil.

Most economist expect the RBA to cut interest rates, now at 5.25 per cent, by 50 basis points in December, which would take the cash rate to a five-year low.

The big picture shows wages growth has been trending upward over the past decade in response to a tighter labour market, albeit more gradually than would have been expected in view of historical experience.

On shorter time frames, however, fluctuations in the demand for labour have led, with a lag, to faster or slower wages growth within that upward trend.

So, while wages growth might not be hypersensitive to labour market conditions it will still ease as job opportunities dry up, as they inevitably will in response to the deepening economic slowdown.

If the RBA continue to lean toward lower interest rates to prevent the economy sliding into a full-blown recession, inflation will obviously be taking a back seat for the time being.

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