Pay rises pick up pace

By BRIAN FALLOW economics editor

Wage rates recorded the biggest rise for 5 1/2 years in the year ended March, but economists do not expect that to stand in the way of a further cut in interest rates by the Reserve Bank next month.

Private sector wages rose 0.5 per cent in the March quarter, pushing the annual rate to 2.2 per cent, the highest increase since September 1997, says Statistics New Zealand.

Of the pay rates surveyed in the labour cost index, 45 per cent stayed the same in the past year. The median increase was 3 per cent.

The index is regarded as a trend measure of wage pressures. It records changes in salary and wage rates for a fixed quantity and quality of work; increases related to performance or years of service are not included.

Such changes are captured by the average earnings data of the quarterly employment survey (QES), also out yesterday, but its figures are blown around from quarter to quarter by changes in the composition of the survey sample.

In the March quarter, private sector ordinary-time earnings fell 0.1 per cent, which pulled the annual increase down to 2.4 from 3 per cent, says the survey.

Market economists were expecting a rise of 0.9 per cent, given other indicators that the labour market remains tight.

The QES, based on a survey of firms, also recorded a 0.1 per cent rise in employee numbers, which economists reckon is 0.8 per cent when adjusted for seasonal effects, similar to the December quarter.

Official jobs data, derived from a household survey, is out on Friday. The median market forecast is for a 0.4 per cent rise in employment.

The wage numbers are not expected to perturb the Reserve Bank. The rise in the labour cost index is close to its forecast of 2 per cent annual growth for the next four years.

Westpac economist Nick Tuffley said wage pressures remained high and not yet past their peak, but that had not stopped the Reserve from cutting interest rates last month.

UBS Warburg chief economist Robin Clements said few hurdles stood in the way of another cut by the Reserve next month.