Australia | May 14 2008
By Chris Shaw
In what would be of minor comfort to the Reserve Bank of Australia (RBA) given its inflation concerns, Australia’s wage price index for the March quarter came in at a gain of 0.9%, slightly below the consensus forecast of an increase of 1.1%.
According to Commonwealth Bank chief economist Michael Blythe the figures for the March quarter show the long feared wages breakout in Australia has yet to appear, largely due in his view to additional labour supply limiting any flow through of the tight labour market into wages growth.
With today’s number being at the bottom of the range of recent years and with annual growth still around the 4% mark Blythe suggests the first quarter update is consistent with inflation eventually returning to the RBA’s target of 2-3%, so today’s number is unlikely to have any impact on monetary policy.
ANZ Bank economist Riki Polygenis agrees, taking the view the softer outcome is something of a reprieve for the RBA as it will give the central bank more time to assess coming data before being forced to act again on interest rates. As Polygenis notes it remains more likely wage pressure flows through into inflation in the current quarter, so the RBA will continue with its tightening bias as it assesses the data in coming weeks.
Westpac also takes the view the RBA remains on a tightening bias, arguing while the headline number was lower than expected broader measures of wage growth show pressures remain. On the bank’s numbers annual growth in wages remains around 5% and growth in average non-farm compensation per employee rose to a record 4.7%, up from 4.5% previously.
But even allowing for such a bias Polygenis suggests the RBA won’t act at the next meeting, preferring to watch for signs of how its previous increases in monetary policy are impacting the broader economy before acting again.