Wage cost pick-up to threaten inflation

The largest quarterly rise in wage costs in nearly two years will threaten the
inflation outlook if such a pace continues into 2011.
Economists say Wednesday's wage cost data for the September quarter justified the
Reserve Bank of Australia's (RBA) pre-emptive strike on potential price pressures
with this month's rise in the cash rate.
The Australian Bureau of Statistics' wage price index jumped 1.1 per cent in the
three months to the end of September on a seasonally-adjusted basis, the largest
increase since the December quarter 2008.
This increase took into account the $26 rise in the minimum weekly wage from July 1
The annual wage growth rate rose to 3.5 per cent, still comfortably below the RBA's
perceived line in the sand of 4.5 per cent but now well above the 2.9 per cent low
seen last year.
"If quarterly changes maintain the (September quarter) pace, annual wages growth
would present a higher inflation risk from mid-2011 onwards," Nomura Australia chief
economist Stephen Roberts said.
Other less up to date data showed wages growth under enterprise bargaining
agreements held steady in the June quarter.
Total average annualised wage growth through bargaining agreements was unchanged at
4.1 per cent, data released by the Department of Education, Employment and Workplace
Relations showed.
Workplace Minister Chris Evans said there were now a record 23,313 agreements in the
private sector.
"It is pleasing to see employers and employees are sitting down at the negotiating
table and co-operating," Senator Evans said in a statement.
"This ... is a clear sign that the federal workplace relations system of agreement
making is delivering a balanced, modern workplace relations system for Australia."
Another report from his department showed skilled job vacancies fell 1.0 per cent in
November, the six consecutive monthly decline which dragged the annual rate down to
5.9 per cent from 24 per cent in June.
TD Securities head of Asia-Pacific research Annette Beacher said this suggests a
modest rise in full-time employment is likely near-term.
"But this tempering is hardly a surprise after 283 000 jobs were added in the last
year," she said.
This tied in with other data showing the economy is likely to enjoy a healthy clip
of growth in the first half of 2011, although perhaps not as rampant as thought a
few months ago.
The annualised growth rate of the Westpac-Melbourne Institute leading index was 4.6
per cent in September, remaining above its long-term trend of 3.1 per cent.
But the index - which indicates the likely pace of economic activity three to nine
months into the future - has seen an abrupt slowdown since hitting 10.3 per cent in
March.
Still, Commonwealth Bank senior economist John Peters expects the RBA will be on the
front foot in 2011 in an environment of a strongly growing economy with building
price pressures.
"An unemployment rate with a big figure four in front of it is likely to spur the
RBA to engineer more rate rises in 2011 on the back of its fears of intensifying
wage inflation," he said.
The government expects the jobless rate to hit 4.75 per cent by mid-2011 compared to
5.4 per cent in October.