Wage growth eased by slightly more than expected in the December quarter, growing 0.7% from the September quarter, figures released by Statistics New Zealand show. The figures are likely to reassure the Reserve Bank of New Zealand that wage inflation is under control, giving it more room to cut the Official Cash Rate than previously expected. The market had expected a 0.8% rise in the Labour Cost Index for wage inflation from the September quarter. Public sector wages grew 0.9% over the December quarter, while private sector wages grew 0.7%. Figures are for salary and ordinary time wages. Wage growth from the December quarter of 2007 was 3.3% overall, with a 3.5% increase in the public sector, and 3.2% in the private sector. Signs that wage inflation is under control will support any further moves by the Reserve Bank to cut the official cash rate again. Most economists expect another 100 basis point cut in the OCR to 2.5% on March 12 after last week's 150 basis point cut to 3.5%. "Wage growth will moderate further, removing another previously threatening upward inflationary force," JP Morgan economist Helen Kevans said. "Already, we forecast that inflation will fall within the RBNZ's 2-3% target range this year, paving the way for more assertive policy easing from the RBNZ. Our forecast calls for a terminal cash rate of 2.25% in April. The forthcoming fiscal stimulus is a key factor preventing even larger cuts to the OCR, with the government planning to inject about NZ$7bn into the economy over the next two years," Kevans said.
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