In the final three months of 2014, New Zealand experienced negative inflation - the consumer price index fell by 0.2 per cent.
Mr English said yesterday that over the past four years, the average wage had increased from around $49,500 to $55,000 and pay was still expected to outpace inflation.
"But if inflation remains low, the dollar value of future wage increases may be smaller than previously expected. This is particularly true in the public sector. Lower inflation means the Government will have to work even harder to control its spending to get its books back in surplus, so public sector wage rises will remain restrained."
PSA national secretary Erin Polaczuk said it looked as though Mr English expected public servants to continue to bear the brunt of the financial crisis.
'"He is basically trying to get a Budget surplus by cutting into the wages of our members again."
Public sector wages had been falling behind the private sector for some time. "This is the year that our members are looking for a pay increase. They have taken the brunt of the Global Financial Crisis for too long. We are meant to be a bit of a rock star economy, we are meant to be improving and we have a high expectation that we are going to get our cut this year."
Seven major government agencies and many other smaller organisations are due to enter pay talks with the PSA this year.
The Labour Cost Index measured an increase in public sector pay of 1.2 per cent in the last June year. The private sector rose by 1.8 per cent.
CTU economist Bill Rosenberg said low consumer price rises are not a reason for low wage increases.
"People are due a catch-up in a growing economy where real wages have not grown as fast as the economy can afford."
That was particularly true for low and middle income earners who had had lower increases in incomes and faced higher inflation.
"Lower prices for petrol, diesel, vehicles, computers and other items also reduce costs for firms, making pay rise more affordable."
Pay talks
The major state sector organisations that will be in collective bargaining for a new agreement this year - around 20,000 PSA members in total:
• District health boards - mental and public health nurses, and allied/technical area
• Inland Revenue
• Ministry of Justice
• Corrections prison staff
• Department of Conservation
• Child, Youth and Family
• Department of Internal Affairs
Source: PSA.
