Kiwis are not backward in letting us Aussies know when they have put one over us – beaten us in a sport (don’t mention the All Blacks) or in their boasting about superior lifestyles, wines, food, dairy, skiing, seafood or yachting.
And occasionally it’s the same in matters business and economic – but not for now. NZ is in the grip of high inflation, low unemployment and rising interest rates because of increasing cost pressures and still-too-high house prices.
Overlay this with the continuing clamps to try and control Covid and its variants and the Kiwi economy is a tough place and will get tougher later this month with a third rate rise in the current cycle from the Reserve Bank of NZ.
But like Australia, excessive wage rises are not a problem, more a concern that wages aren’t or can’t rise further to give workers real income growth.
On Wednesday we got another reminder of this difficulty just before RBA Governor, Phil Lowe forecast Australian unemployment would fall to 3.75% by the end of 2022.
In his speech he forecast that wage rises would reach 3% in 2023, thereby giving the central bank room to lift rates. But that is only a forecast and the RBA has now a long history of issuing overly optimistic forecasts on wages growth (and inflation for that matter).
The bank is forecasting core or underlying inflation to be around 2.75% this year and in 2023 – not much higher than 2.6% at the end of 2021.
The governor said suggestions of a surge in wages had yet to materialise, revealing the RBA expects the wage price index to increase by 2.75% this year and 3% in 2023.
“Wages growth has picked up as well, but it has only just returned to the rates prevailing prior to the pandemic,” he said.
He only has to look to NZ to see the reality of wages and inflation policies and the sluggishness of the former, despite record low unemployment.
Just before Governor Lowe spoke, Statistics NZ revealed the Kiwi unemployment rate had fallen to 3.2% – the lowest since comparable records started in 1986 and down from 3.3% revised down from 3.4% originally, indicating the strength of job creation).
Statistics NZ said last week inflation in the year to December was 5.9% (Australia’s was 3.5%).
But wage data for 2021 released at the same time on Wednesday confirmed that Kiwi workers fell further behind last year as costs soared.
Stats NZ said its Labour Cost Index (LCI), (like the Wage Price Index in Australia) a broad measure of salary and wage costs, rose at an annual rate of 2.6% in the quarter, up from an annual rate of 2.4% in the September quarter.
That’s not that much faster than Australia which saw a 2.4% rise in the WPI in the year to September.
Despite falling unemployment, Stats NZ said the “underutilisation” rate, which is a broader measure of unemployment and underemployment, remained unchanged from the previous quarter at 9.2%.
The proportion of people in employment was also unchanged at 68.8% and the participation rate (a measure that the Kiwis don’t seem to use much) was a high 71.1% – against 66.1% in Australia.
Like Australia Statistics NZ said the private sector experienced stronger growth in hourly earnings when compared with the public sector – in both cases that was because of government caps on employee wage rises.
Average hourly earnings rose an annual 4.1% for the private sector, while public sector hourly earnings saw a smaller 3.1% increase from the December 2020 quarter.
“Quality adjusted pay increases, as measured in the LCI, were lower in the past year for the central government administration industry than other public sector-dominated industries, such as healthcare and education,” Statistics NZ said.
Lower public sector wage growth followed the announcement of a wage restraint policy from the Government in May 2021 – as in Australia where the Morrison government has a 1% cap on Commonwealth public service wage rises.
And it should be said this is not a problem confined to Australia and NZ – the US is seeing it as well with consumer inflation running at an annual 7% for the year to December, the highest in 40 years. US wage growth is slowing – to around 4.4% in December – and interest rates are on their way up. New wages data will be issued on Friday with January’s labour force data.
The Fed will make the first rate rise next month, with economists tipping another couple by year’s end.
But by the time the RBA sees itself in a position to lift rates, the RBNZ could have lifted its rate 6 times or to around 2% by the end of 2023 and the Fed could have just as many under its belt.
