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Australian wage growth slowest on record in Q1, keeps rate cut window open

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Australian wages grew at their slowest pace on record last quarter, reflecting a subdued inflation environment that should keep the door open for another cut in interest rates this year.

[SYDNEY] Australian wages grew at their slowest pace on record last quarter, reflecting a subdued inflation environment that should keep the door open for another cut in interest rates this year.

Figures from the Australian Bureau of Statistics on Wednesday showed the wage price index rose a mere 0.4 per cent in the first quarter, the smallest increase since records began in 1997. The outcome undershot the median forecast for 0.5 per cent.

That took the annual rate to 2.1 per cent, a record low as well.

"The continuing deceleration in wages growth means ongoing downwards pressure on inflation as it means a further fall in cost pressures for businesses," said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

"As such the latest reading on wages growth reinforces the RBA's decision to cut interest rates this month and is consistent with more rate cuts ahead."

The Reserve Bank of Australia (RBA) reduced its official cash rate to a record low 1.75 per cent earlier this month, citing surprisingly low inflation.

The central bank has also slashed its 2016 underlying inflation forecasts to below its target band of 2 to 3 per cent, a material downgrade that prompted investors to bet on at least one more cut in interest rates this year.

Markets took the wage data in their stride with investors instead waiting for the closely watched employment report due on Thursday.

The lack of wage pressure is not all bad, though, as it has helped provide an underpinning to a surprisingly resilient labour market.

Australia's unemployment rate fell to a 30-month low of 5.7 per cent in March with annual jobs growth staying healthy at 2 per cent.

The unexpected strength in the labour market is encouraging for an economy facing the challenge of transitioning away from a once-in-a-lifetime mining investment boom to other sources of growth.

"The fact that employers are not experiencing the same sorts of wage inflation that they otherwise would means they are more open to increasing head counts," said Tom Kennedy, economist at JPMorgan.

Analysts polled by Reuters expect a modest rise of 12,500 jobs in April and for a slight tick up in the jobless rate to 5.8 per cent.

REUTERS