-Tom Kennedy, economist at JP Morgan
Business activity in the Australian construction sector improved in the final quarter of 2014, boosted by an increase in home building. The amount of construction work completed in the three months through December declined 0.2%, but that was enough to easily overshoot analysts' predictions of a 1.2% drop and compared with the 2.8% fall in the third quarter. The reading leaves the annual rate of contraction at just 4.8%. Non-residential construction retreated 2.9% on the quarter, while residential building offset the decline by rising 2.5%. In addition to that, wages in Australia continued to rise at a sluggish pace in the last quarter of 2014, underscoring challenges for RBA policy makers in spurring growth through consumption. Australian wage inflation was the slowest on record in the three months through December, highlighting the impact a sluggish economy has had on the labour market and price pressures. Wages excluding bonuses climbed by 0.6% from the third quarter and rose 2.5% from a year earlier, according to the Australian Bureau of Statistics. Weak wage growth is yet another sign that the labour market has a large amount of spare capacity. Australia's unemployment rate hit the highest level in more than 12 years of 6.4% in January and is predicted to advance further this year. Inflation is expected to be benign due to falling commodity prices, while rising jobless rate tends to discourage excessive wage demands.
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