Australia Jobs Boom May Fan Inflation, Strikes, Rates

Jan. 15 (Bloomberg) -- Australia’s biggest jobs boom in more than three years may fan inflation as unions strike for pay increases of as much as 30 percent, 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 percent, 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 A$1 million ($930,000) a day, the nation’s peak employer group says.

Labor disputes about wages are “going to be a growing theme,” said Helen Kevans, an economist a JPMorgan Chase & Co. in Sydney. “Our labor 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 Jan. 11. The union has sought annual wage increases of between A$70,000 and A$100,000 for each employee, the group said.

Interest Rates

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 percent chance of a quarter-point increase in the overnight cash rate target to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:52 a.m. Chances of a quarter-point move in March are at 100 percent. Prior to yesterday’s report, the chances of a February increase were 60 percent.

The number of people employed gained 35,200 last month, more than three times the median estimate of 19 economists surveyed by Bloomberg for an increase of 10,000, yesterday’s report showed.

Full Employment

Australia’s jobless rate has fallen to 5.5 percent from 5.8 percent in October and is now almost half the 10 percent rate of the U.S. 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 of Australia in Sydney. “Full employment is considered to be where the jobless rate is around 5 percent, and that is certainly not far away.”

Deputy Prime Minister Julia Gillard told the Australian Financial Review 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 officer 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, Chevron

Woodside Petroleum Ltd. and Chevron Corp., operator of the A$43 billion Gorgon natural gas project in Western Australia, are among companies affected by labor disputes in the shipping industry. Perth-based 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 percent 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. Jim Lloyd, president of the New South Wales Liquor Hospitality and Miscellaneous Union, told the Sun Herald newspaper on Jan. 3 that half of the workforce at Sydney’s Star City casino took industrial action last month after rejecting a 2 percent pay offer.

The labor market in “the mining sector is pretty much back to capacity,” Governor Stevens told economists in Sydney on Dec. 8. “There are a lot of other countries in the world who would like to have that problem.”

Inflation Threat

Higher wage demands threaten to fuel core inflation, which has held above the central bank’s target range of between 2 percent and 3 percent since the second quarter of 2007. The bank’s so-called weighted-median gauge of inflation rose an annual 3.8 percent in the third quarter. Fourth-quarter figures are due on Jan. 27.

“Inflation expectations have rebounded,” said Kieran Davies, chief economist at RBS Group Australia Ltd. 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 labor costs rose 0.9 percent in the three months through November, up from 0.8 percent in October, according to a survey of companies published last month by National Australia Bank Ltd.

“The fact that we are starting this recovery with an unemployment rate vastly below the levels of past recoveries would alarm the central bank,” Davies said.