Labour costs worry
But economists still expect rate cut
INFLATIONARY PRESSURE is emanating from labour markets. So says the SA Reserve Bank in its latest Monetary Policy Review (MPR), which shows different measures of wage costs are rising faster than the 6% upper limit of its inflation target.
The review reports wage inflation measured in terms of the year-on-year growth in nominal remuneration per workers in the formal non-agricultural sector, which grew by just more than 7% over the past two quarters of 2007, rose by 12,5% in first quarter and 12,7% in second quarter of 2008. The growth in labour productivity was 1,6% in the first and 2% in the second quarter.
Both sets of figures imply unit labour costs – measured as wage inflation adjusted for productivity changes – rose by 10,7% in first quarter 2008 and 10,5% in the second quarter, after having recorded an increase of 4,6% in fourth quarter 2007.
Despite those inflationary concerns – plus other worries, such as the weak rand – most economists expect the Bank’s first interest rate cut to occur in first half 2009. An exception is First National Bank’s Cees Bruggemans, who says a cut is possible as early as December this year.