Wages high on central bank radars

By Kristina Cooke

NEW YORK (Reuters) - Central bankers around the world are at different stages when it comes to combating price pressures, but all of them are keeping a close watch on wages for early warning signs of future inflation.

Brazil's central bank last week expressed growing concern about above-inflation wage deals and said interest rates will remain high for a long time to counter the inflation threat.

In the United States, meanwhile, wages have been largely stagnant due to stubbornly high unemployment. That's one reason Federal Reserve Chairman Ben Bernanke thinks the oil-related jump in inflation will be fleeting and interest rates can stay at record lows.

On Friday, the United States releases its employment report for April. The world's largest economy is expected to have added 190,000 jobs, according to a Reuters survey, not nearly enough to make much of a dent in the jobless rate, which is expected to hold at 8.8 percent.

"We are watching for this coming Friday whether any signs of wage inflation are starting to pick up, because that is, in my view, at the center of the Fed's radar screen," said Torsten Slok, international economist at Deutsche Bank in New York.

Average hourly earnings are expected to rise just 0.2 percent in April after being flat in March, hardly the stuff of an inflationary spiral.

"It's still very suppressed," said Slok. Without a pick-up in wages, he said, it is hard to see troubling inflation taking hold unless the U.S. dollar took a larger hit.

So far, there is no evidence higher prices have lifted wage demands, according to researchers at the New York Federal Reserve Bank.

The open question is how much pressure there will be on wages in the future once slack in the U.S. economy subsides, said Michael Gapen, an economist at Barclays Capital.

In the past couple of decades, inexpensive labor from emerging markets helped keep a lid on U.S. wage pressures, but those times may have changed.

"It's not clear that those dynamics will be in our favor going forward," Gapen said. "The big unanswered question is: Are we likely to get globalization contributing to low price pressures in the next 20 years as we did in last 20 years?"

INFLATION PRESSURES ABOUND ELSEWHERE

Global inflation pressures are prompting other countries to let their currencies appreciate against the dollar, which analysts see as a reason the dollar's slide has accelerated.

Developing countries in particular have complained that the weak dollar has stoked inflation in their economies.

Brazil's inflation is close to breaking through the 6.5 percent ceiling of the government's target range and the fight against higher prices is dominating the early months of President Dilma Rousseff's administration.

Inflation data from Brazil and Chile, due on Friday, will be a test of how effective their central banks have been with different approaches to combating price growth.

India's central bank is also battling surging price pressures. It is widely expected to lift interest rates by a quarter-percentage point when announcing its annual monetary policy on May 3. Some economists are even calling for a half-point rise.

Price pressures are complicating policy for some developed countries as well, though both the Bank of England and European Central Bank are expected to hold rates steady at meetings this week.

Investors will listen carefully, though, for any signals that the ECB is mulling another rate hike in June or July. The ECB raised rates for the first time since 2008 in April.

In the UK, a patchy run of economic data -- culminating in tepid first quarter growth of 0.5 percent -- suggests the economy's recovery may be faltering, which should keep the BoE on hold.

In the United States, economic data has also been choppy, another reason the Fed is in no hurry to lift borrowing costs.

Growth slowed sharply in the first three months of the year and a report on Thursday showing a surprise jump in the number of Americans claiming unemployment benefits cast a shadow on expectations for a significant second-quarter pick-up.

"It's more on people's minds now -- is it just a minor bump in the road or is it a soft patch?" said Slok.

(Reporting by Kristina Cooke; Editing by Dan Grebler)