By BRIAN FALLOW
Official labour market figures show wage inflation remains subdued. They also back up unexpectedly strong employment data released a fortnight ago.
The quarterly employment survey recorded a 1.4 per cent increase in average ordinary time earnings in the private sector in the year to August - a slowdown from
1.7 per cent three months earlier.
The labour cost index, which measures changes in wages and salaries for a fixed quantity and quality of labour, recorded a 1.3 per cent annual increase in private sector ordinary time wage rates.
"That's still fairly muted wages growth," said Deutsche Bank economist Darren Gibbs, but he pointed to overtime earnings as a harbinger of mounting wage pressure to come.
"They were falling but now they are starting to rise again. That is what we saw back in 1993, and it was a precursor to general wage inflation, that overtime wages responded first to skill shortages."
Deutsche Bank expects wage inflation to rise to around 4 per cent in 18 months' time.
ANZ Bank economists warn that higher consumer price inflation, - 3 per cent and expected to reach 4 to 5 per cent by the middle of next year - could underpin inflation expectations and wage demands.
The quarterly survey also provided a measure of confirmation from the employer side for the unexpectedly strong employment data in the household labour force survey two weeks ago.
The support is not unequivocal because Statistics New Zealand says changes to the quarterly survey sample population would have an effect on estimates of total jobs and paid hours.
That said, it recorded a 3.7 per cent increase in the number employed in the year to August on a "full-time equivalent" basis, where two part-timers count as one full-timer. Paid hours were up 4 per cent on an annual basis.
Mr Gibbs said Deutsche Bank was picking a 0.7 per cent rise in gross domestic product in the September quarter, fully unwinding the June quarter's contraction.
"People have been carried away with headline confidence numbers, which employers may have been using to send a signal to the Government, and not focusing enough on what's happening in the export and agricultural sectors."
The Government's building of hospitals and schools was also creating growth, said Mr Gibbs.
On the other hand, some of the recent improvement in retail sales might prove ephemeral, reflecting buying of big-ticket consumer goods to beat impending price rises.
