Bloomberg News

New Zealand Wages Rise 0.5%, Adding to Case to Hold Rates

November 01, 2011

(Updates with comment from economist in fourth paragraph.)

Nov. 1 (Bloomberg) -- Wage gains in New Zealand held steady in the third quarter, adding to signs of modest inflation pressure that may delay the need for the central bank to raise interest rates from a record low.

Pay for non-governmental workers excluding overtime rose 0.5 percent from the second quarter, when it gained the same amount, Statistics New Zealand’s labor cost index released in Wellington showed today. The result matched the median forecast in a Bloomberg News survey of 10 analysts.

Income is growing as the economy recovers from earthquakes that devastated the southern city of Christchurch in the past year. Central bank Governor Alan Bollard signaled last week he is prepared to raise the official cash rate from 2.5 percent to counter inflation pressure, assuming European debt turmoil doesn’t cause a wider slump in global growth.

The pace of wage growth “will remain subdued,” Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland, said in a research note before today’s report. “This reflects reduced profitability and the degree of slack in the labor market.”

New Zealand’s dollar was little changed after the report. It bought 80.74 U.S. cents at 10:50 a.m. in Wellington from 80.68 cents immediately before the release.

Annual wage growth in the third quarter slowed to 2 percent from 2.1 percent in the prior quarter, today’s report showed. It accelerated from 1.6 percent in the year-earlier quarter.

Quake Damage

New Zealand’s economy expanded 1 percent in the first half of 2011 as consumers paid back debt rather than spend, while business investment was subdued. A magnitude 6.3 earthquake near Christchurch on Feb. 22 killed 181 people and shut the central business district, hurting spending.

Bollard responded to the temblor by cutting the official cash rate by half a percentage point in March to revive confidence. He has delayed raising borrowing costs because the European debt crisis poses a threat to commodity prices and growth in the nation’s trading partners, while New Zealand’s third-quarter inflation was also less than he expected.

All 16 economists surveyed by Bloomberg News predict Bollard will leave the cash rate unchanged until next year. Two see a rise in January and seven forecast a March increase.

The jobless rate probably fell to 6.4 percent in the third quarter from 6.5 percent in the April-June period, according to a Bloomberg survey of 13 economists ahead of a Nov. 3 government report.

Average ordinary-time hourly earnings for non-governmental workers rose 1.3 percent in the quarter, the statistics agency said in a quarterly survey of employers, also published today.

Demand for labor was steady in the third quarter, the statistics agency said, citing new seasonally adjusted figures in the survey. The number of full-time equivalent employees rose 0.1 percent from the second quarter while filled jobs gained 0.7 percent. Total weekly paid hours was unchanged from the second quarter when they gained 0.7 percent.

--With assistance from Daniel Petrie in Sydney. Editors: Edward Johnson, Michael Heath

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Shamim Adam at sadam2@bloomberg.net


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