Australian Wages Growth Stalls at 0.8% on Job Losses

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian wages growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today in Sydney. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

The global recession has eroded demand for Australian exports of coal and iron ore, forcing companies to postpone investment plans and hire fewer workers. Wage pressures may ease further as unemployment climbs, the central bank said last week after policy makers left the benchmark interest rate unchanged for a fourth month at a half-century low of 3 percent.

“Today’s figures will reaffirm the view held by Reserve Bank officials that current policy settings are appropriate,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “Economy-wide price pressures remain subdued.”

The Australian dollar fell to 82.67 U.S. cents at 12:17 p.m. in Sydney from 82.97 cents just before the report was released. The two-year government bond yield shed 1 basis point to 4.52 percent. A basis point is 0.01 percentage point.

The so-called wage price index advanced 3.8 percent in the second quarter from a year earlier, slowing from an annual increase of 4.2 in the previous quarter, today’s report showed.

Job Losses

Australia’s unemployment rate has risen to 5.8 percent, the highest level in almost six years, from 4.9 percent in January. Advertisements for job vacancies on the Internet and newspapers tumbled a record 51.9 percent last month from a year earlier, an Australia & New Zealand Banking Group Ltd. index showed.

A Reserve Bank survey shows the proportion of companies expecting to increase wages this year has fallen from over 90 percent to around two-thirds, the central bank said last week.

“Business surveys taken in the March and June quarters also suggest that labor-cost growth is likely to continue to moderate over the period ahead,” the central bank said in its quarterly monetary policy statement on Aug. 7.

Australia’s lowest paid workers will get no increase in the minimum wage after the Fair Pay Commission in July maintained the hourly rate at A$14.31 ($11.84).

Easing wage pressure may give central bank Governor Glenn Stevens scope to keep borrowing costs unchanged in coming months, even as evidence mounts of an economic rebound.

Consumer Confidence

The central bank said last week its next move on interest rates, which policy makers slashed by a record 4.25 percentage points between April and September, is likely to be an increase after it scrapped a prediction the economy will fall into a recession.

“The Reserve Bank will sit on the sidelines during the remainder of the year, before embarking on the next tightening cycle in early 2010,” JPMorgan’s Kevans said.

Rising consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said. The current rate is “appropriate.”

Consumer confidence jumped 3.7 percent in August from July to close to a two-year high, according to an index released today by Westpac Banking Corp.

Business sentiment jumped in July to the highest level in almost two years, adding to evidence the economy is rebounding from the global recession, a survey by National Australia Bank Ltd. showed yesterday.

Hourly rates of pay at manufacturers increased 2.7 percent from a year earlier, the smallest gain among the 16 industries surveyed by the statistics bureau. Salaries at utility companies rose 4.6 percent from a year earlier, to register the largest gain.

Traders forecast the central bank’s overnight cash rate target will be 180 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:11 p.m. in Sydney. They tipped 177 basis points of gains before today’s release.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net