KEY POINTS:
New figures show pay rates rising at a record pace, but economists do not see them bringing any delay to further interest rate cuts by the Reserve Bank.
The Labour Cost Index (LCI) released by Statistics New Zealand (SNZ) today showed salaries and wages, including overtime, rising at
a record rate of 3.5 per cent in the June year.
The latest increase in the LCI was the largest annual rise since the series began in 1992, beating the previous record of 3.4 per cent in the March 2008 and December 2007 years.
For the June 2008 quarter, salary and wage rates, including overtime, were up 0.8 per cent, following an increase of 0.7 per cent recorded in the March quarter and 1.1 per cent in the December quarter.
As measured by full-time equivalent employees (FTEs), employment increased 2.5 per cent for the June 2008 year, according to the Quarterly Employment Survey (QES) also released by SNZ today. That compared to growth of 3.5 per cent for the March year.
ASB chief economist Nick Tuffley said wage growth was stronger than expected, and paid hours were also looking pretty positive.
"Overall we're not seeing any signs of wage growth abating, and early indications are that labour input held up reasonably well over the quarter," he said, but added that there was scope for the Reserve Bank to keep easing.
ANZ-National senior economist Khoon Goh said that given the data was a lagging indicator, it was not surprising that wage growth remained elevated, and "we suspect the peak is close".
With the labour market starting to ease, wage pressures could be expected to start to ease during the second half of the year.
"This doesn't stand in the way of further rate cuts from the Reserve Bank of New Zealand (RBNZ). The focus is now on the deceleration in the economy, and particularly given the recent jitters over investment funds, it's a clear sign that further interest rate cuts are well on the way."
Deutsche Bank chief economist Darren Gibbs said the labour input measures were surprisingly strong for an economy he thought had contracted in the second quarter.
"The labour market is still tight, right here, right now, for the RBNZ the question is where it's going to be in 18 months, and I've got unemployment rising to 5 per cent," Gibbs said.
Today's figures would not alter the outlook for the Reserve Bank.
The QES data showed industries that contributed most to the annual increase in employment were manufacturing; health and community services; and transport, storage and communication. Employment in the retail trade industry fell.
Total paid hours increased over the past 12 months although growth in hours was not as strong as growth in employment, SNZ said.
Seasonally adjusted total paid hours increased 2 per cent for the June year and 0.5 per cent for the quarter. Seasonally adjusted total gross earnings were up 7.4 per cent for the June year.
Annually, average total hourly earnings increased 5.2 per cent as the annual increase in total gross earnings continued to exceed the annual increase in total paid hours.
The QES average earnings statistics reflect not only changes in pay rates, but also compositional and other changes across and within the paid workforce.
In comparison, the LCI measures changes in salary and wage rates for a fixed quantity and quality of labour input.
- NZPA
