Wage increases grew bigger and more widespread in the December quarter, squeezing corporate profits and testing the Reserve Bank's patience.
Amid shortages of skilled labour and the lowest unemployment rate in 18 years, wage inflation rose 0.7 per cent in the December quarter.
That is the fastest increase Statistics New Zealand has recorded in private sector wage rates since March 1996.
The 0.7 per cent gain, excluding bonuses and promotions, pushed the annual increase to 2.5 per cent, up from 2.2 per cent in the September quarter.
Inflation was 2.7 per cent last year and the Reserve Bank said late last month that it expected it to remain near 3 per cent, the top of the target band, in the medium term.
The steepest increases in pay rates were in the construction sector, utilities (electricity and gas) and "personal and other services" - the likes of hairdressers.
Unadjusted wages, which include promotions, bonuses and recognition of productivity gains, are also accelerating, up 4.8 per cent a year, compared with 4.5 per cent for the year ended September.
Deutsche Bank chief economist Ulf Schoefisch said indicators such as firms' reported difficulty in finding skilled staff pointed to continued pressure for wage rises. "But I don't think it is alarming at this stage."
Firms were likely to absorb much of the rise in labour costs at the expense of profit margins rather than pass them on to consumers.
Westpac chief economist Brendan O'Donovan said, "It's going to keep the Reserve Bank talking tough, but it's still a moot point whether most firms can pass it on through higher prices, especially exporters or those competing with imports."
But Toplis said yesterday's figures reflected an economy with demand still running hot - giving some potential for firms to increase prices.
He cited restaurants slapping on a 15 per cent surcharge for public holidays, with little apparent customer backlash.
The quarterly employment survey, also released yesterday, recorded a jump in paid hours worked of 2.1 per cent in the quarter - making a 4.8 per cent increase for the year. That reflected both more people employed (up 3.9 per cent on a year ago) and working longer hours each week.
Combined with high pay rates, the resulting boost to household incomes was good news for retailers, economists said.
Wage increases running hot
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