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Australian wages growth unexpectedly accelerated in the second quarter at the fastest pace in 11 years, underlining the central bank's concern that rising salaries may stoke inflation

Hourly pay rates excluding bonuses climbed 1.2% from the previous quarter, when they rose 0.9%, the Australian Bureau of Statistics said today.

The median estimate in a Bloomberg survey of 24 economists was for a 1% gain.

In New South Wales, wages were up 0.9% for the quarter and 3.9% for the year; in Victoria they were up 1.0% for the quarter and 4.1% for the year; Queensland was up 0.7% for the quarter and  3.9% for the year; South Australia was up 0.6% for the quarter and 4.6% for the year; in Western Australia it was 1.4% the quarter and 5.6% for the year; Tasmania was up 0.8% for the quarter and 3.7% for the year; and in the Northern Territory the figure was up 1.7% for the quarter and 4.3% for the year. The ACT was up 0.6% for the quarter and 3.9% for the year.

The Reserve Bank of Australia left the benchmark lending rate at a 12-year-high of 7.25% last week and signalled it may cut the rate for the first time in almost seven years as slowing economic growth cools inflation.

Chinese demand for Australian commodities has stoked a mining boom that has pushed unemployment close to its lowest in more than three decades.

"The door still appears open for a quarter-point rate cut by the Reserve Bank in early September,'' said Stephen Walters, an economist with JPMorgan in Sydney.

"An even larger spike in wages could have raised concerns about cost-push inflation.''

The Australian dollar slid to 86.09 US cents from 86.74 US cents before the report was released. The two-year government bond yield gained 4 basis points, or 0.04 of a percentage point, to 5.84%.

Consumer confidence

The increase in the wage price index was the largest since the series began in 1997, according to the ABS.

A separate report showed today that consumer confidence rose in August from a 16-year low.

Hourly rates of pay at mining companies rose 6.7% from a year earlier, the biggest annual increase among the 16 sectors surveyed by the ABS.

Concern that a drop in unemployment to 3.9% in February, the lowest since 1974, would stoke wages and inflation was a key reason the RBA raised the overnight cash rate target to 7.25% in March. It also increased the benchmark in February, November and last August.

Consumer prices rose 4.5% in the second quarter from a year earlier. The central bank says inflation will peak at 5% in the final three months of 2008 before falling below 3% in mid 2010. Policy makers aim to keep annual price increases between 2% and 3% on average.

Economy slowing

The wage price index advanced 4.2% from a year earlier in the June quarter, faster than the first quarter's 4.1% gain, today's report showed.

Wages may slow in coming quarters amid evidence Australia's $1 trillion economy is moderating as consumers slash spending in the face of higher borrowing costs and petrol prices.

"The rate of growth in aggregate wages has remained fairly stable, despite the increase'' in inflation "and generally tight labour-market conditions,'' the central bank said this week.

Economic growth will slow to 2% this year from 4.3% in 2007, the bank said this week.

Wages may cool as companies cut staff. Qantas said last month it will sack 1500 staff, and meat processing company Don Smallgoods will cut 640 jobs.

Business confidence in July held at the lowest level in seven years and job-vacancy advertisements fell for a third month, adding to signs employers will pare hiring as economic growth slows.

The jobless rate has risen to 4.3% in July from 3.9% in February.

"Demand pressures in the economy now appear to be easing,'' the central bank said this week.

Bloomberg