A constrained rise in wages points to a slowing economy and more interest rate cuts, economists say.

Analysts say the Reserve Bank of Australia (RBA) is more concerned about rising unemployment than wage inflation, as it tries to steer the nation through the carnage on world financial markets.

Labour price worries were put at ease today after Australian Bureau of Statistics (ABS) data showed a 0.9 per cent, seasonally adjusted, rise in wages during the September quarter.

The September quarter labour price index increase was marginally lower than market forecasts of a one per cent rise, and below the June quarter climb of 1.1 per cent.

Labor costs rose by 4.1 per cent in the year to September, the same annual pace as the year to March and June.

HSBC chief economist John Edwards said the wages data “eliminated” RBA concerns that inflation would spark an acceleration in wages growth.

“With the Australian economy now slowing sharply and employment growth easing, policymakers need no longer bother about wages growth,” Dr Edwards said.

“They have a whole new set of anxieties.”

National Australia Bank head of economics Jeff Oughton said the central bank was more worried about a rising jobless rate.

“It’s no longer a war on inflation, it’s a war on jobs,” he said.

Western Australia had the nation’s fastest annual wages growth, of 5.1 per cent, unadjusted, in the year to September, but the pace was below the June’s 5.6 per cent yearly increase.

The struggling NSW economy had the slowest annual wages inflation pace, of 3.7 per cent in September.

News about lower wages pressures in Australia’s biggest state came a day after the NSW mini-budget projected a slower growth of 1.25 per cent in 2008/09.

Nationally, private sector workers were better off, enjoying an annual wages increase of 4.2 per cent, seasonally adjusted, compared with 3.7 per cent for public sector employees, the ABS said.

ANZ economist Riki Polygenis said wage pressures were likely to ease as the economy slowed.

“Wages growth is expected to moderate further over the next few years as cash-constrained firms become more reluctant to increase wages and as employees feel less power to demand large wage increases,” she said.

Public and private sector workers each had a 0.9 per cent wages increase during the September quarter.

Commonwealth Bank of Australia senior economist Michael Workman said wages inflation was a lower priority for the RBA than navigating Australia through the global economic turmoil.

Most economist expect the RBA to cut interest rates, now at 5.25 per cent, by 50 basis points in December, which would take the cash rate to a five-year low.

AAP