Australia wage growth hits decade high, but misses forecasts
Business
Markets had wagered interest rates could peak as high as 4.35%
SYDNEY (Reuters) - Australian wages grew at the fastest annual pace in a decade last quarter but that was still short of market forecasts and could lessen the pressure for further aggressive hikes in interest rates, sending the local dollar lower.
Figures from the Australian Bureau of Statistics out on Wednesday showed its wage price index rose 0.8% in the December quarter from the previous quarter, under forecasts of a 1.0% increase.
Annual pay growth picked up to 3.3%, from a revised 3.2%, but again was under forecasts of 3.5% and a likely relief for policymakers who fear high inflation could lead to a damaging price-wage spiral.
Markets had been braced for an upside surprise and quickly reacted by pushing the Australian dollar down 20 ticks to $0.6847, while futures scaled back slightly the likely future peak for interest rates.
The Reserve Bank of Australia (RBA) has already hiked interest rates a huge 325 basis points to a decade-high of 3.35% as inflation surged to a 20-year peak of 7.8% late last year.
Yet it surprised investors this month by flagging even more increases ahead in a desperate effort to cool domestic demand and keep inflation expectations anchored.
As a result, markets had wagered interest rates could peak as high as 4.35%, but that tempered toward 4.1% following the wages news.
Policymakers have been concerned that wages will follow prices higher and add fresh impulse to costs. The RBA had forecast wage growth of 3.5% for last quarter, so the actual outcome should be a pleasant surprise.
"Wage growth was weaker than the RBA had expected last quarter and we think it won’t accelerate as rapidly as the RBA anticipates," said Marcel Thieliant, head of Asia Pacific economics at Capital Economics.
"As we expect the labour market to loosen more rapidly than the Bank anticipates, we think it will peak at just under 4% instead of the RBA’s forecast of 4.2%."
Business surveys are still pointing to fatter pay deals as unemployment holds near 50-year lows, with the RBA noting around one-third of firms it surveyed had reported wage rises above 5%.
The ABS data showed wages in the private sector led the way in the December quarter with an annual rise of 3.6%, while the public sector lagged at 2.5%.
