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Wage growth lags behind price increases

Tuesday 3rd August 2010

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New Zealand wage gains are lagging behind rising prices ahead of October’s planned hike to the goods and services tax as the economy emerges at a crawl from its worst recession in 18 years.

Private sector average total hourly earnings rose 0.6% to $23.53 in the three months through June, taking it to an annual 1.3% increase, according to Statistics New Zealand.

That’s behind the annual 1.8% consumer price index over the same period and comes before a predicted surge of 2.2% when the tax hike comes into effect, according to Reserve Bank forecasts.  

The Labour Cost Index, which tracks nearly 6,000 positions and measures changes in pay rates for a fixed quantity and quality of labour, rose 0.4% in the June quarter, taking it to an annual increase of 1.6%, still lagging the CPI indicator. That was led by a 2.1% increase in public sector pay for the years ended June, with private sector salary growth of 1.5%.

“Annual wage growth continues to slow, although we expect growth to begin to recover toward the end of 2010,” said Jane Turner, economist at ASB.

“While wage growth remains reasonably subdued, there is evidence of some improvement, particularly in the private sector.” 

Economists were picking wages to lag behind inflation by 0.5 percentage points according to the New Zealand Institute of Economic Research’s survey of 10 financial and economic agencies in March.

Companies are also more downbeat about hiring, with last month’s National Bank Business Outlook showing a net 8.3% expecting to increase their payrolls over the next year from a net 13% last month, while a net 3.5% predict unemployment to rise in the coming 12 months, a turnaround of a net 15% expecting a fall in June.

The data comes ahead of the household labour force survey on Thursday, which is considered the main tier data, including the unemployment rate. Economists forecast the jobless rate climbed to 6.4% over the June quarter, according to Reuters data.

Statistics NZ data showed the total number of paid hours grew 1.2% to 50.16 million in the quarter, the first increase in 18 months, with total gross earnings up 1.8% to $1.278 billion in the period.

The number of full-time equivalent positions rose 1% to 1.32 million in the three months ended June 30, and filled jobs increased 1.4% to 1.69 million in the quarter.

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