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Wages growth slow enough to allow rate cut


Australians' paypackets are growing at a slower rate than they were three months ago, giving the central bank room to cut its key interest rate in December.

Total hourly rates of pay, excluding bonuses, rose 0.7 per cent in the September quarter, figures released by the Australian Bureau of Statistics on Wednesday show.

That was down from 1.0 per cent growth in the June quarter.

In the year to September, wages were up 3.7 per cent.

Economists say the slowdown in wages growth will give the Reserve Bank of Australia (RBA) room to cut the cash rate at its December meeting, if it believes economic conditions warrant lower rates.

Commonwealth Bank senior economist Michael Workman said with wages growing at a slower rate and productivity improving the RBA was likely to cut in either December or February.

"With moderating wages growth and reasonable productivity outcomes it puts another rate cut in the most likely outcome scenario, but whether they do it in December or wait for February is the big issue," he said.

The RBA last cut the cash rate in October, to its current level of 3.25 per cent

JP Morgan economist Tom Kennedy agreed another rate cut was probably on the way.

"They (the RBA) are in an easing cycle at the moment, so, as long as inflation remains constrained I think they will be more than content to push that cash rate lower."

Mr Kennedy said the figures suggested the jobs market had weakened recently and the unemployment rate was likely to rise over the coming months.

"Obviously, it's a deceleration from the first half of the year," he said.

"What it really means is that the pressure on wage growth is slightly slowing and you will probably see the unemployment rate tick slightly higher over the coming months."

Mr Workman said the figures showed the mining sector continued to lead the pack in wages growth - with hourly rates of pay up 4.4 per cent in the past year - sectors like retail and health, which employ greater numbers of people, had recorded wages growth around three per cent.

"So you are getting some of the bigger employing sectors of the economy running at rates in line with lower inflation outcomes over the next two years," he said.

The wage price data showed Western Australia recorded the strongest wage growth in the year to September (up 4.5 per cent), followed by New South Wales (up 3.7 per cent).

Queensland and Tasmania recorded the slowest wage growth (both up 3.3 per cent).