14/05/2008 - 09:44

WA wage growth highest in the nation

14/05/2008 - 09:44

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Wage costs in Western Australia have grown the fastest in the nation, with overall national figures showing the slowest growth since September 2006.

WA wage growth highest in the nation

Wage costs in Western Australia have grown the fastest in the nation, with overall national figures showing the slowest growth since September 2006.

The national wage price index for the March quarter rose by a seasonally adjusted 0.9 per cent after five quarters of one per cent or above growth, while WA rose by one per cent, seasonally adjused for the quarter and 5.9 per cent for the year, Australian Bureau of Statistics data released today show

The index - the Reserve Bank of Australia's preferred measure of wages growth - grew by 4.1 per cent in year to March, down from 4.2 per cent in the year to December.

Last week the RBA said that while the current level of interest rates was appropriate, it indicated it would have little tolerance to second-round effects from high inflation, such as rising wages.

Macquarie Group senior economist Brian Redican said the data showed there was no sign of a wages breakout - one of the few things that could result in higher interest rates in the short term.

"If anything, it suggests that wages growth is not accelerating or even might be decelerating," Mr Redican said.

But he cautioned that the RBA was relying less on this series as an indication of wages growth.

"The RBA has been shifting focus away from the wage price index, so it's certainly not decisive in suggesting that wages prices have rolled over," Mr Redican said.

The wage price index was "not quick" to pick up wages pressures when they emerged, Mr Redican said.

Citigroup managing director of economics Paul Brennan said the data suggested an easing in wage pressures, inconsistent with the low unemployment rate and current labour shortages.

"The RBA has taken the view for some time that the data do not fully capture the increase in labour costs from more flexible work and compensation arrangements designed to attract and keep skilled labour, particularly in the resource states," Mr Brennan said.

Nevertheless, no evidence high inflation had leaked into wages, as a result of higher inflation expectations, would be welcomed at the central bank, ICAP senior economist Matthew Johnson said.
"A massive sigh of relief will have just gone up (at RBA headquarters) in Martin Place, and at the Treasury building," Mr Johnson said.

Commonwealth Bank of Australia chief economist Michael Blythe said the long-feared wages breakout was yet to eventuate.

"Additional labour supply is the fundamental factor that has limited the flow through of tight labour markets to wages growth," Mr Blythe said.

Macquarie's Mr Redican said some industries outside of the mining industry were battling with already high interest rates and a soaring Australian dollar.

"That might be weakening the employment confidence of workers and limiting their demands for higher wages," Mr Redican said.

Also, Mr Redican said income tax cuts had already provided real wage gains in recent times.

The wage price index found private sector wages rose 0.9 per cent in the March quarter, while those in the public sector grew 0.8 per cent.

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