KEY POINTS:
Wage growth gathered speed in the last three months of last year, good news for retailers but not for a Reserve Bank looking for consumer spending to cool down.
The bank's preferred measure of wage inflation, the Labour Cost Index's private sector all salary and wage rates, rose 0.9 per cent in the December quarter, lifting the annual increase to 3 per cent from 2.9 per cent in September.
With overtime rates excluded, the increase was 1 per cent, up from 0.8 per cent in September, which pushed the annual increase to a record 3.2 per cent.
The public sector continues to outstrip the private sector, with central government salaries rising 3.8 per cent over 2006.
The labour cost index attempts to measure changes in pay rates for the same quantity and quality of work. It excludes promotions, service increments, bonuses or other recognition of increased productivity.
The unadjusted measure, which leaves those in, is a better indicator of what is happening to payroll costs. It rose 1.3 per cent in the December quarter and 4.9 per cent over the year.
The annual rate peaked at 5.7 per cent last March and has been slowing since then.
In the December quarter, the average increase was 5.2 per cent and the median 4.2 per cent.
Meanwhile another labour market indicator, Statistics NZ's quarterly employment survey, also released yesterday, also recorded robust growth.
Wage and salary earners' incomes rose 9 per cent over 2006, reflecting more people in jobs, longer hours worked and higher hourly pay.
Filled jobs rose 1.8 per cent in the quarter. Statistics New Zealand does not seasonally adjust that data.
Total paid hours rose 0.9 per cent (seasonally adjusted) making 3.8 per cent for the year.
That would substantially outstrip the increase in economic output over the year, implying declining labour productivity and employers hoarding workers.
"The acceleration in wage inflation will be a concern to the Reserve Bank," ANZ National Bank chief economist Cameron Bagrie said.
It had expected the drop in CPI inflation and the corresponding fall in inflation expectations to keep wage inflation contained. Its December forecasts had wage inflation remaining close to 2.9 per cent until the middle of this year, then easing.
"Today's wage inflation numbers will give them a large sense of discomfort as it suggests the combination of a tight labour market, past high headline inflation and possibly some spillover from higher public sector wage growth is seeping into wage-setting behaviour. Given the Reserve Bank's concerns about medium-term inflation pressure, they will be wary that the acceleration in wage inflation will find its way into general consumer prices."
The money market now sees an 80 per cent probability the bank will raise the official cash rate 25 basis points on March 8.
Council of Trade Unions economist Peter Conway said wage increases were modest for a labour market with widespread shortages.
The market has been tight for six years but there was little evidence that wage rises were having a major impact on inflation.
"For instance, the Labour Cost Index shows that ordinary time wages have gone up by 6.3 per cent in the past two years compared with a 25.3 per cent increase in median house prices in that period," he said.
"Consumer prices rose by 2.6 per cent in 2006 but with lower inflation forecast this year, hopefully workers can see wage rises that provide a more significant boost to real incomes."
Many unions would also be seeking employer contributions to superannuation.
"To close the 30 per cent gap with Australian wage levels, we need decent wage rises every year for the foreseeable future," Conway said.
"That will require continuous improvements in labour productivity alongside more widespread collective bargaining."
