Australia | Feb 24 2010
By Chris Shaw
Australian wages rose by 0.6% in the December quarter of 2009, the smallest increase in almost a decade and an outcome below the market's expectation of an increase of 0.8%. This leaves wages up 2.9% from a year ago, which is the smallest annual rate of increase since the March quarter of 2000.
The breakdown of the figure shows private sector wages rose by 0.6%, while public sector wages were only up by 0.1%. Industries with the fastest rate of annual wage growth include transport, postal and warehousing, education and training, electricity, gas, water and waste and health care and social assistance.
Those with the slowest rate of annual wage growth include administrative and support services, rental, hiring and real estate services and accommodation and food services. All states recorded gains, with Tasmania and the Australian Capital Territory both recording increases of 3.7% in annual terms, while South Australia was the lowest at a gain of 2.4%.
According to CommSec chief economist Craig James, the wages number is a win-win as for private sector companies it means wages growth is the slowest in more than a decade, which has the effect of keeping costs down and boosting profitability.
On the other side employees are benefiting from the fact wages are growing faster than prices, so their purchasing power continues to grow. It is this growth in real wages and purchasing power that has driven household spending and overall economic growth in recent years, recalls James. As well, he notes if real wages hadn't increased housing affordability would have deteriorated, which in turn would have restrained the construction sector of the economy.
Westpac suggests the modest increase in the December quarter was a reflection of rising unemployment through the first half of 2009 as wage growth developments typically lag labour market outcomes by around six months.
According to Westpac, the December quarter outcome is likely to be the trough for wages growth as unemployment began to trend down in the September quarter more rapidly than it or the market had been expecting.
There was little immediate market impact to the wages data, Westpac noting the Australian dollar was essentially unchanged on the back of the number. ANZ senior economist Shane Lee notes the data indicate there is little upward pressure on inflation from the strengthening labour market, though given it is a lagging indicator such an outcome is no surprise at this stage of the cycle.
Lee expects as the labour market continues to tighten through 2010, cost pressures will likely increase, which in turn should start to put some upward pressure on inflation. He suggests today's data do little to change the view a near-term increase in the cash rate is required, something he expects will occur at the Reserve Bank of Australia's March meeting.