By Wayne Cole
SYDNEY, Feb 20 (Reuters) - Australian wages grew at the slowest pace in two and a half years last quarter, a turnaround that should help contain inflation and provide scope for further monetary easing if needed.
Wednesday's data from the Australian Bureau of Statistics showed annual growth in total hourly rates of pay dropped to 3.4 percent in the fourth quarter of last year, from 3.7 percent the previous quarter.
That was under forecasts of 3.5 percent and the lowest reading since mid-2010. The outcome will provide comfort to the Reserve Bank of Australia (RBA) which is counting on a moderation in wages to help keep inflation within its target band over the next couple of years.
'This is a benign outcome,' said Michael Turner, an economist at RBC Capital Markets. 'The data are very much in the 'affords scope to ease' category, though do not make such a move more likely in our books.'
The central bank cut rates in both October and December taking them to a record-matching low of 3.0 percent, in part to offset competitive pressures on the domestic economy caused by a stubbornly high currency.
It skipped a chance to ease further at its February meeting but left the door wide open for a move if growth disappointed.
Currently investors see only a one-in-four chance of a cut at the RBA's next meeting in March, largely due to an improving global backdrop. Yet interbank futures are still full pricing for an easing to a record low of 2.75 percent by June.
The RBA has recently sounded less concerned about the outlook for inflation, in part because it expects the unemployment rate to creep higher for the next year or so and add to slack in the labour market.
Underlying inflation surprised last quarter by easing back to an annual 2.25 percent, the lower half of the RBA's long term target band of 2 to 3 percent.
The central bank sees wage growth stabilising around 3.25 percent a year, comfortably short of the 4.0-4.5 percent pace that is generally considered a threat to inflation.
Wednesday's data seemed to support that benign view. Wages rose a moderate 0.8 percent in the fourth quarter, compared to the previous quarter, with both private and public sector pay up by a matching amount.
For the year, mining was again the best paying sector with wage gains of 5.1 percent, followed by wholesale trade and utilities.
At the bottom of the scale were the hotels and food sector with annual wage growth of 2.2 percent, and retail at 2.4 percent. Both sectors have been weighed by a combination of the high local dollar and changing consumer spending habits.
(Reporting by Wayne Cole; Editing by Shri Navaratnam) Keywords: AUSTRALIA ECONOMY/
(Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: email@example.com)
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