Sharechat Logo

Economists see unemployment holding steady but some say wage inflation may be emerging

Monday 30th July 2018

Text too small?

Economists are tipping the second-quarter unemployment rate to remain steady but some say Wednesday's data may point to signs of wage inflation as the impact of a lift in minimum wage kicks in and migration continues to slow.

The June quarter unemployment rate is expected to be 4.4 percent, unchanged from the first quarter, according to the median of 14 economists polled by Bloomberg. Private sector wage inflation - including overtime - is forecast to rise 0.6 percent versus 0.3 percent in the prior quarter. 

Benign inflation, including tepid wage inflation, has kept interest rates on hold at a record low 1.75 percent since November 2016 and led the central bank to signal no increases until well into 2019. The central bank is due to publish its next monetary policy statement on Aug. 9 and this week's data will be key, in particular now that it has a dual employment and inflation mandate. 

"The missing piece of NZ’s inflation puzzle is wage inflation. Even as the labour market has tightened, with the unemployment rate now below what many would consider sustainable, underlying wage growth has remained muted," said Kiwibank chief economist Jarrod Kerr. 

However, a common argument behind the weak wage growth has been the rapid influx of migrants boosting labour supply and "net migration is now slowing, and we expect wage inflation to start climbing from here," he said. 

Also, the government's first major minimum wage hike towards $20/hr came into effect on April 1 – a 75 cent rise to $16.50/hr and "in the public sector, we have seen a number of pay disputes hit the headlines, which may eventually spill over to private sector pay," he said. 

BNZ's head of research Stephen Toplis also highlighted the impact of the lift in minimum wage, saying it will push the annual increase in labour cost inflation through 2 percent, a level seen as being consistent with the central bank's 2 percent inflation target. 

"Many will play this down as an aberration but they will be missing the point," said Toplis, adding are three more minimum wage increases penciled in and each of them is bigger than this year’s event.

"Then there is the nurses’ settlement, future pay equity settlements, the generally increased pressure on wages from staff shortages and heightened demands for compensation for rising CPI inflation all of which is yet to be fully captured in the data."

Westpac Bank, however, downplayed in the impact.

"To date there has been little evidence that the tightening labour market has led to a pickup in wage pressures. And our forecasts assume that this remains the case in the June quarter. Although we expect a 0.5 percent quarterly lift in the Labour Cost Index (LCI), the lift is mostly due to this year’s larger than usual minimum wage hike and last year’s aged care workers’ pay equity settlement," it said. 

However, it does expect wage inflation to "eventually start to drift higher next year." 

ASB Bank chief economist Nick Tuffley also said "despite the lift in the minimum wage boosting LCI wages, wage distribution measures are expected to depict a generally contained wage inflation backdrop." He added that he expects the central bank "will want to be sure that wage growth will continue to firm before lifting the OCR, meaning rate hikes are distant." 

ANZ Bank also said it expects Wednesday's data to show a rise in wage inflation but said it is boosted by "temporary factors," and therefore won't sway the central bank. 

"We expect that this lift in wage inflation will have only a small impact on CPI inflation... This reflects the fact that the increase in wages is not driven by the economic cycle. If the lift were driven by demand pressures, the implications would be very different," it said. 

(BusinessDesk)

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

New director of Vital Healthcare’s manager unfazed by fire-at-will clause
QMS pulls out A$35M from NZ unit in MediaWorks merger
Take care to avoid
Is this the calm before a storm of credit card thrashing?
Shrinking meat and dairy product manufacturing weighs on growth outlook
Jon Macdonald to stay on as Trade Me boss through takeover tussle
Shareholders’ Association wants Finzsoft to come clean
A2 rings in more executive changes under new CEO Hrdlicka
NZ dollar dips as China-US trade tensions cast pall over global markets
No end in sight to global market turmoil

IRG See IRG research reports