Wednesday, May 16, 2007

Wednesday May 16: The day the prospect of a rate rise in 2007 was killed stone dead.

Dramatically lower than expected wage growth figures have killed the last remaining chance of an interest rate rise this year. In February the Reserve Bank sparked a frenzy of interest rate speculation when it warned that the quarterly wage price index calculated by the Bureau of Statistics was increasing at about the fastest rate in its ten-year history.

The eagerly awaited figure for the March quarter, released yesterday, has allayed its concerns. Although the index grew at an apparently robust rate of 1.0 per cent over the quarter and 4.1 per cent over the year the Bank believes that it overstates the real rate of wage growth because it includes the payment of the Fair Pay Commission’s minimum wage rises awarded last year.

Adjusting for the timing of the payment, wages appear to be increasing only steadily or slightly decelerating...

Public sector wage growth eased to 0.8% in the March quarter, down from 1.3%. In contrast, private sector wage growth increased slightly to 1.1% from 1.0%. Because the private sector has a greater proportion of employees on minimum wages its result would have been more heavily influenced by the timing of the minimum wage decision.

Western Australia saw the highest annual wage growth at 4.8 per cent. NSW and Victoria each recorded the lowest annual wage growth of 3.6 per cent. In the ACT wages climbed 4.1 per cent.

Economists described the restraint as “phenomenal” given Australia’s 32-year low in unemployment and widespread talk of skills shortages.

Among the explanations offered were the role of immigration and temporary worker visas in restraining wages, and the role of Australian Workplace Agreements in preventing workers accessing award wage rises.

But apparently confounding the explanation that AWA’s played a role in retraining wage rises was the news that wages grew strongly in two of the industry categories in which AWAs were the most common – retail and accommodation, cafes and restaurants.

The Employment Minister Joe Hockey said that the Labor party and the union movement had spent the last year predicting that wages in the retail and hospitality industries would fall. “Today’s data proves their claims are nothing more than base scare mongering”.

The wages data was accompanied by news that the Westpac/Melbourne Institute index of consumer sentiment had climbed to an all-time high of 123.9, up from a seasonally adjusted 115.3 in April. An index of 100 indicates that on balance consumers are neither confident nor concerned about the future. The index has been compiled since 1975.

The telephone survey was conducted at the end of a week which saw new budget tax cuts in the Federal budget, record high share prices, and news of yet another record high in employment.