Brian Fallow

The Economics Editor of the NZ Herald

Subdued wages lift pressure on rates

Wage growth remained subdued in the September quarter and provided yet another reason for the Reserve Bank to keep its official cash rate on hold for some time, economists said.

The bank's preferred measure of wage inflation is private sector salary and wage rates, including overtime, from Statistics New Zealand's Labour Cost Index.

It rose 0.5 per cent in the quarter, making 2 per cent for the year, in both cases unchanged from the June quarter.

"This is bang in line with the sort of wage inflation that would be considered consistent with the Reserve Bank getting CPI inflation back to the mid-point of its target band," Bank of New Zealand economist Stephen Toplis said.

The index is intended to capture movements in rates of pay for the same quantity and quality of work. Pay increases which reflect the fact that employees have become more productive, proficient, experienced or have taken on extra responsibilities are excluded.

The unadjusted figures, which leave them in, recorded an increase of 1 per cent in the quarter, for the private sector, and 3.5 per cent for the year, the weakest increase for a year.

The median annual pay rise - for the 56 per cent of employees who received any rise at all - was 3 per cent. It has been 2.9 or 3 per cent for the past 18 months.

Sales workers experienced the lowest increases, whereas automotive, engineering and construction trades were near the top, ANZ economist Mark Smith said. Meanwhile the Quarterly Employment Survey (QES), also released yesterday, presented a mixed picture of employment growth.

The number of filled jobs rose 0.7 per cent from the June quarter, seasonally adjusted.

But the number for "full-time equivalent" employees (which counts two part-timers as equivalent to one full-timer) rose just 0.1 per cent, to be 0.5 per cent up on a year earlier.

And the number of paid hours, which has been trending down for a year, was unchanged in the quarter.

"This suggests that much of the increase in filled jobs may have been due to increased part-time employment," ASB economist Jane Turner said.

The QES measure of average hourly earnings in the private sector rose 3.2 per cent on an annual basis.

"There were also substantial tax cuts through this period which will have, alone, lifted take-home pay by between 2.3 and 6.4 per cent," Toplis said.

Combined with the lift in hourly pay rates they would have more than offset the negative impact on spending power from the rise in inflation.

- NZ Herald

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