Wage pressure increasing amidst falling unemployment rates

Experts expect an increase in wage pressure after it was reported that unemployment rates have fallen to its lowest levels since the 1980s. Economists warn that the increase in wage is likely to be overtaken by inflation and will only add to rising cost of living which are already at a 31 year high.

The quarterly household labour force survey data that will be released by Statistics New Zealand on Wednesday is expected to show the economy added more jobs in the final three months of the year. This addition will further lower the unemployment rate from the 3.4 percent reported for the September 2021 quarter. The New Zealand economy is also reported to have created new jobs in December in its 13th consecutive increase.

In its biggest increase since 1990, consumer inflation rose to 5.9 per cent in 2021. News of this hike will further increase the pressure for pay increase. With border restrictions in place, wage pressure is likely to increase further as employers compete for a limited pool of workers. However, according to ASB senior economist Mark Smith, wage increases would still be below consumer inflation weakening the spending power of households,“High CPI inflation will also drive wages higher, although real wages for most workers will go backwards in 2022.” Kiwibank cited an over-stimulated economy coupled with supply-chain disruption within the country and abroad as the reasons behind the rapid increase in the price of ordinary goods and services.

With the Reserve Bank under pressure to get inflation under control, it is expected that the central bank may opt to hike the official cash rate (OCR) by 50 basis points at its first meeting of the year on February 23.