They must be chewing their nails off at the Reserve Bank and among the inflation hawks in the markets: despite lots of wishing, hoping and a’fearin, there’s still no sign of a wages break-out.
Yes wages are continuing to rise strongly, but not at levels that would cause the Reserve Bank to say “that’s it, wages break out, rate rise looms.”
Far from it. This morning the Australian Bureau of Statistics released the labour price index for the March quarter which showed, in seasonally adjusted terms, that the labour price index for the March quarter rose 0.9% on the December quarter, for an annual increase of 4.1%. That was down from the 1% rise in December quarter over September, and the 4.2% annual rate in calendar 2007.
The ABS however cautioned that there is some noise in these figures because of the changes to the way basic wages are set with the Fair Pay Commission.
But that reservation aside, the index increase is down on the 4.25% estimated for the June 30 financial year by Treasury in last night’s Federal Budget.
Treasury also estimated a 4.25% rise in the labour price index over 2008-09, so if the latest level is maintained, then there will be some pressure off interest rates.
The ABS said in commentary that “the Private sector seasonally adjusted through the year movement (4.1%) is higher than that of the Public sector (3.9%) for the second consecutive quarter. December quarter 2007 marked the end of a five year period in which Public sector increases were consistently higher than in the Private sector.”
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But that could change with big wage rises for teachers in Victoria and claims for state employees in WA, NSW and again in Victoria.
The ABS said that looking at the states “in original terms, all States recorded a quarterly change of between 0.8% and 1.0%. Western Australia recorded the largest change through the year (5.9%) followed by South Australia (4.6%). The lowest rates of change through the year were reported by Tasmania and the Northern Territory (both 3.6%).”
And looking at industries, the booming mining industry recorded the largest rise (in original terms) through the year and quarterly change of any industry (5.8% and 1.7% respectively). Accommodation, cafes and restaurants recorded the smallest change through the year (2.4%) and the lowest quarterly change with Communication services (both 0.3%).
Seeing that Treasury and the Government reckon unemployment will be 0.5% higher by the end of 2009 financial year at 4.75% (and average 4.5% over 2008-09), the latest labour price index is good news.
It shows that wages growth is still under control as the domestic economy enters a slowdown, and so far there hasn’t been a spillover of the enormous wages growth in mining, into the broader economy. But the Brumby Government in Victoria and the state education union are trying very hard to undo that work.
Meanwhile the Federal Budget got a big tick this morning from Goldman Sachs JBWere economists who told clients:
Although it may be lacking in glamour, the relatively frugal nature of the Budget at a time of high inflation should be well received by financial markets. While the ALP has gone to great lengths to claim that this Budget will ease inflationary pressures, most of the supply enhancing initiatives involve large implementation lags.
In reality, the ALP’s biggest contribution to inflation is that it is not making the inflation process worse. After 2 years of notable conflict, finally we have fiscal policy that is pushing in the same direction as monetary policy.