Australia’s biggest jobs boom in more than three years may fan inflation as unions strike for pay increases of as much as 30 per cent, intensifying pressure on central bank Governor Glenn Stevens to raise interest rates.
Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 per cent, a report showed yesterday.
Teachers, nurses, postal workers and even casino staff have threatened or gone on strike for higher wages in recent weeks amid a looming skills shortage. A dispute between the Maritime Union of Australia and companies such as Norway-based Farstad Shipping ASA are costing the industry about $1 million a day, the nation’s peak employer group says.
Labour disputes about wages are “going to be a growing theme”, said Helen Kevans, an economist at JPMorgan in Sydney. “Our labour market has proved much more resilient than other nations. The central bank will definitely be worried about building wage pressures.”
The maritime union began a campaign in November against shipping companies supplying oil and gas producers, the Australian Chamber of Commerce & Industry said on January 11. The union has sought annual wage increases of between $70,000 and $100,000 for each employee, the group said.
Mr Stevens is the only central banker in the world to raise borrowing costs three times since the height of the global financial crisis, predicting Chinese demand for iron ore will stoke economic growth in Australia, one of the few nations to skirt the global recession.
Investors are betting there is a 72 per cent chance of a quarter-point increase in the overnight cash rate target to 4 per cent at the RBA’s next meeting on February 2, according to interbank futures. Chances of a quarter-point move in March are at 100 per cent. Prior to yesterday’s report, the chances of a February increase were 60 per cent.
The number of people employed gained 35,200 last month, more than three times more than economists had predicted.
Australia’s jobless rate has fallen to 5.5 per cent from 5.8 per cent in October and is now almost half the 10 per cent rate of the US and European Union economy.
“If policy makers and businesses are going to worry about anything in coming months, it’s that the job market is tightening too quickly,” said Craig James, a senior economist at Commonwealth Bank. “Full employment is considered to be where the jobless rate is around 5 per cent, and that is certainly not far away.”
Deputy Prime Minister Julia Gillard said this week there may be an increase in strikes as wage agreements come up for renegotiation in 2010.
“The union movement held its fire during the global financial crisis,” Peter Anderson, chief executive of the Chamber of Commerce & Industry, said in an interview this week. “As the Australian economy has emerged less scathed from the financial crisis, we see unions in key industries starting to flex more ambitious industrial demands.”
Woodside Petroleum and Chevron, operator of the $43 billion Gorgon natural gas project in Western Australia, are among companies affected by labour disputes in the shipping industry. Woodside said last month that a strike by maritime union members working on its Pluto natural gas venture would have a short-term impact on the project.
The Maritime Union is seeking a 30 per cent pay increase over three years and extra allowances for Farstad workers.
Others to strike recently include postal union workers and Sydney bus drivers, who halted work prior to Christmas. Half of the workforce at Sydney’s Star City casino took industrial action last month after rejecting a 2 per cent pay offer.
Higher wage demands threaten to fuel core inflation, which has held above the central bank’s target range of between 2 per cent and 3 per cent since the second quarter of 2007. The bank’s so-called weighted-median gauge of inflation rose an annual 3.8 per cent in the third quarter. Fourth-quarter figures are due on Jan. 27.
“Inflation expectations have rebounded,” said Kieran Davies, chief economist at RBS Group in Sydney. “Wages have been knocked flat by the drop in hours worked over the past year, but survey measures of labor costs are stirring.”
A gauge of labour costs rose 0.9 per cent in the three months through November, up from 0.8 per cent in October, according to a survey of companies published last month by National Australia Bank.
“The fact that we are starting this recovery with an unemployment rate vastly below the levels of past recoveries would alarm the central bank,” Mr Davies said.
