Australia Q1 wage gains underwhelm, take heat out of rate talk



By Wayne Cole

SYDNEY, May 18 (Reuters) - Australian wage growth ticked up by only a fraction last quarter even as a tightening labour market and record vacancies heightened competition for workers, leading investors to scale back bets on larger increases in interest rates.

Figures from the Australian Bureau of Statistics on Wednesday showed its wage price index (WPI) rose 0.7% in the March quarter, missing forecasts for a 0.8% increase.

The annual rate picked up to 2.4%, from 2.3%, but again was below forecasts of 2.5%. The private sector saw growth of 2.4%, while the public payroll lagged at 2.2%.

The miss saw the local dollar drop 20 ticks to $0.7012 AUD=D3 as many in the market had been wagering a stronger number would put pressure on the Reserve Bank of Australia (RBA) to lift interest rates at a faster pace.

Futures 0#YIB: duly edged higher as the market trimmed back expectations for how high rates might go, although the market is still almost fully priced for a quarter-point hike to 0.60% in June. RBAWATCH

Investors are even wagering rates could reach 2.75% by Christmas from the current 0.35%, which would be one of the most drastic tightening cycles on record. RBAWATCH

"The data were weaker than the consensus had anticipated and should quell some commentators who have been calling for the RBA to hike by a larger 40 basis points at its June meeting," said Ben Udy, an economist at Capital Economics.

The 2.4% annual wage gain was actually the biggest since late 2018 but only half the pace of consumer price inflation at 5.1%, meaning most Australians were suffering a real cut to incomes.

That is a headache for Prime Minister Scott Morrison as he battles to win re-election this weekend, trailing in opinion polls and under fire for cost-of-living pressures.

Among industries, the only sector to make a pay gain of more than 3% for the year was real estate, a disappointing outcome for the RBA which has long desired to see national wages top that figure.

Still, the central bank's Board has been swayed by reports from businesses that they were having to lift pay awards to attract and hold workers.

Unemployment is expected to soon fall below 4% for the first time since the early 1970s, while vacancies stand at an all-time high of 423,500.

Notably, surveys have shown a sea-change among firms that are now looking to pass on rising costs to customers after years of strict price control.
Reporting by Wayne Cole; Editing by Richard Pullin

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