Job boom fans fears of inflation

SYDNEY: 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 on Thursday.

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 ($1.25 million) a day, says the nation's peak employer group.

Labour disputes about wages were "going to be a growing theme", said Helen Kevans, an economist at JPMorgan Chase 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. The union had sought annual wage increases of between A$70,000 and A$100,000 for each employee, the group said.

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 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 central bank's next meeting on February 2, according to Bloomberg calculations.

Chances of a quarter-point move in March are at 100 per cent. Before Thursday's report, the chances of a February rise were 60 per cent.

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

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 United States 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 of the Commonwealth Bank of Australia in Sydney.

Deputy Prime Minister Julia Gillard told the Australian Financial Review this week there might be an increase in strikes as wage agreements came up for renegotiation.

"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."

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.

"Inflation expectations have rebounded," said Kieran Davies, chief economist at RBS Group Australia.

- BLOOMBERG