Labour costs worry

But economists still ex­pect rate cut

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN

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.

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