Wages up 1.9% in March qtr from a year ago, but slower than expected, adding to pain for consumers as inflation rises

Salary and wage rates, including overtime pay, rose 1.9% in the March quarter from a year ago, according to figures from Statistics New Zealand. This was lower than underlying inflation, implying a drop in real wage rates.

ASB economist Jane Turner said the growth was slightly softer than expectations, although the data pointed to a gradual recovery in wage growth from very subdued levels.

The increase followed annual rises of 1.7% in the December quarter and 1.6% in September. Annual wage growth had fallen from a peak of 4% in the September 2008 quarter to as low as 1.5% in the March quarter a year ago.

Private sector wages grew 2% annually in the March quarter, the highest quarterly growth since the September 2009 quarter, Stats NZ said. Public sector wages were up 1.4%, the same as in December.

The government has been signalling its intention to tighten spending and wage growth in the public sector.

The figures come after annual consumer price inflation came in at 4.5% in the March 2011 quarter. However about 2.2 percentage points of this was due to the increase in GST from 12.5% to 15% on October 1, which was generally compensated for through income tax cuts, leaving underlying inflation of about 2.3%.

Turner said wage growth had picked up from the rapid deceleration seen a year ago, as firms controlled wage costs during the recession.

"Nonetheless, the patchiness of the economic recovery and subdued profitability are continuing to weigh on wage growth. We expect an improvement in employment demand will flow through to a continued recovery in wage growth over the coming year," Turner said.

There were also encouraging signs of a recovery in employment demand over the March quarter, after disappointing results over the second half of 2010, she said.

Statistics New Zealand figures showed average total weekly paid hours for full-time equivalent employees increased 1.4% to 38.43 hours from a year ago. This was the second-largest increase since the series began in March 1989.

"The lift in hours paid and seasonally-adjusted full-time equivalent employees points to strong employment growth over Q1. As a result, we expect Thursday’s Household Labour Force survey to show a small drop in the unemployment rate to 6.7%," Turner said.

See the release from Statistics New Zealand:

Salary and wage rates, which include overtime, increased 1.9 percent in the year to the March 2011 quarter, Statistics New Zealand said today. This increase in the labour cost index (LCI) follows a 1.7 percent increase in the year to the December 2010 quarter and a 1.6 percent increase in the year to the September 2010 quarter. Annual wage growth declined from a peak of 4.0 percent in the year to the September 2008 quarter to 1.5 percent in the year to the March 2010 quarter.

Salary and wage rates for the private sector increased 2.0 percent in the year to the March 2011 quarter. This is the largest increase since a 2.0 percent increase in the year to the September 2009 quarter. Public sector rates increased 1.4 percent in the year to the March 2011 quarter, which is the same increase as for the year to the December 2010 quarter.

Annual wage growth was higher due to a higher proportion of wage rates increasing. The average size of increases remained about the same. Fifty-six percent of salary and ordinary time wage rates in the LCI sample rose in the year to the March 2011 quarter, up from 53 percent, 49 percent, and 46 percent in the years to the December, September, and June 2010 quarters.

The Quarterly Employment Survey (QES), also released today, showed that average total hourly earnings continued to rise. In the March 2011 year, average total hourly earnings increased 2.6 percent, which is up from a 1.9 percent increase in the December 2010 year.

For the same period, average total weekly paid hours for full-time equivalent employees increased 1.4 percent to 38.43 hours. This is the second-largest increase since the series began in March 1989.

The Christchurch earthquake on 22 February 2011 did not affect the LCI or QES estimates for the March

2011 quarter as the reference week for both surveys was before the earthquake. Please refer to the Labour Cost Index: March 2011 quarter and Quarterly Employment Survey: March 2011 quarter for specific information.

The LCI tracks nearly 6,000 positions and measures changes in pay rates for a fixed quantity and quality of labour.

The QES is designed to measure quarterly estimates of change in, and levels of, average hourly and average weekly (pre-tax) earnings, average weekly paid hours, and the number of filled jobs. QES statistics are derived quarterly from approximately 18,000 surveyed business locations in a range of industries and regions throughout New Zealand.