KEY POINTS:
Wage rates rose 0.7 per cent in the March quarter, making 3.5 per cent for the year - slightly less than expected but still too high for comfort at the Reserve Bank, economists said.
The bank had forecast its preferred measure of wage inflation - the Labour Cost Index private sector wages including overtime series - to clock up 3.6 per cent growth.
The broader measure which includes the public sector also rose 0.7 per cent, keeping the annual rate at a record-equalling 3.4 per cent, Statistics New Zealand said.
These measures strip out any performance-related component to wage increases, to give a measure of underlying rate-for-the-job growth.
The unadjusted measure, which more closely reflects increases in take-home pay, rose 1.2 per cent in the quarter, making 5.4 per cent for the year. That is the strongest annual wage growth since June last year and is the fourth successive quarter in which it has increased.
Reserve Bank Governor Alan Bollard last month expressed concern about the risk of a wage-price spiral if pay settlements responded to pressure to compensate employees for rising food and energy costs rather than adjusting to changing economic conditions.
But Council of Trade Unions president Helen Kelly said yesterday that food, fuel, rent and mortgage interest rates were likely to continue rising so wages needed to as well.
First NZ Capital economist Jason Wong said the only comfort the Reserve Bank could take from yesterday's figures was that wage inflation might be peaking.
"A labour cost index inflating closer to 2 per cent would be more consistent with the bank's CPI objective and the current reading of 3.5 per cent is a long way from that."
Westpac chief economist Brendan O'Donovan said, "We think accelerating wage inflation is a likelihood, not a risk. Wage increases might be sold as cost of living adjustments but that would be only window-dressing, for the underlying reality is that New Zealand is desperately short of workers."
Even with the economic slowdown in store this year, the unemployment rate was likely to rise to only 4 per cent, from 3.4 per cent now.
"There is a long lag from labour market conditions to wages. It took years of sub-4 per cent unemployment before wage inflation really accelerated. Equally, wage inflation will linger for long after worker shortages diminish, if they ever really do," O'Donovan said.
Meanwhile the quarterly employment survey, also released yesterday, recorded no increase at all in paid hours in the March quarter, when adjusted for seasonal effects, while gross earnings were up 1.3 per cent.
For the year ended March, total gross earnings were up 7.6 per cent on a 2.9 per cent increase in hours.
