New Zealand Wages Probably Rose by Record 3.6% in Year to June

By Tracy Withers

Aug. 1 (Bloomberg) -- New Zealand's annual wage inflation probably accelerated at a record pace in the second quarter as a shortage of labor forced companies to pay more for workers.

Ordinary time wages for non-government workers rose 3.6 percent in the year to June, according to the median estimate of 11 economists surveyed by Bloomberg. Wages probably gained 0.8 percent from the previous three months. Statistics New Zealand releases the report at 10:45 a.m. in Wellington on Aug. 4.

Workers are demanding higher wages as soaring food and fuel costs are expected to push inflation to an 18-year high. New Zealand's jobless rate was close to a record-low in the first quarter and immigration has slowed, forcing companies to pay more to keep and attract staff.

``There is every reason to expect wage demands to be met,'' said Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington. Workers ``are living through the highest inflation in two decades, and they will demand compensation.''

Annual wage inflation will probably accelerate from 3.5 percent in the year to March, which was the fastest pace since the series began in the fourth quarter of 1992.

Consumer prices will rise about 5 percent in the year to September, the fastest pace since 1990, according to central bank forecasts. New Zealand's jobless rate was 3.6 percent in the first quarter, rising from a record 3.4 percent. Annual immigration was close to a seven-year low in June.

Union Demands

New Zealand's biggest union said this month it will seek higher wages for its 50,000 members after a report showed gasoline prices rose 13 percent in the second quarter.

``Every time our members fill up their cars or fill their supermarket trolleys, they're feeling the pinch and the only answer to that is to ensure that they're getting high enough wages to keep ahead of the game,'' said Andrew Little, national secretary of the Engineering, Printing and Manufacturing Union.

Reserve Bank Governor Alan Bollard last week cut the benchmark interest rate a quarter point to 8 percent, the first reduction in five years, saying slowing economic growth will ease inflation to less than 3 percent by mid-2010

The economy contracted in the first quarter and eight of 13 economists forecast it also shrank in the three months to June, putting New Zealand in its first recession since 1998.

Bollard said last week that slowing growth ``will make it more difficult for higher wage claims to be agreed'' and he expects wage growth will slow from next year, combating inflation.

Bloomberg Survey

A second report on Aug. 4 will show average ordinary time hourly earnings for non-government workers rose 1.4 percent in the second quarter, according to the median forecast of nine economists. Earnings increased 1.1 percent in the first quarter.

Following is a table of forecasts for the non-government labor cost index for ordinary wages and for average hourly ordinary time earnings.

          Labor Cost      Avg. Hourly
         Ordinary time    Earnings
         Qtr   Year        Qtr
----------------------------------
Median     0.8%   3.6%      1.4%
Number      11     11         9
----------------------------------
ANZ Bank   0.8%   3.5%      1.5%
ASB Bank   0.8%   3.7%      1.0%
BNZ        0.9%   3.7%      0.9%
Citibank   0.9%   3.7%      1.2%
Deutsche   0.8%   3.6%      1.9%
First NZ   0.8%   3.6%      1.2%
Goldman    0.5%   3.3%      0.9%
JPMorgan   0.8%   3.6%      ---
Macquarie  0.7%   3.5%      ---
UBS        0.7%   3.5%      1.5%
Westpac    0.9%   3.7%      1.6%
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To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.