Minimum wage rises expected to spur inflation in New Zealand Minimum wage rises expected to spur inflation in New Zealand

Minimum wage rises expected to spur inflation in New Zealand
23 Jul 2018

Increases in New Zealand's minimum wage and a move towards collective bargaining will accelerate the pace of pay rises over the next five years and spur inflation, according to ASB Bank economists.

Economist Mark Smith and chief economist Nick Tuffley said the planned increase in the minimum wage to NZ$20 (US$13.47) an hour by 2021 could add between 0.5 and 0.7 percentage points to annual wage inflation by the middle of 2022 as the 13% of workers on the bottom pay rung, or those earning a little more, shift up the pay scale. If proposed Fair Pay Agreements and easier settings for collective bargaining are included, the additional annual wage increase could be closer to 1% as lower-paid sectors benefit from greater job protection.

Newsroom.pro indicated that the situation would also probably drive up consumer prices but without a corresponding increase in productivity, which Tuffley and Smith estimate could boost inflation by between 0.3 and 0.7% per year, and potentially lead to higher interest rates.

Demand for higher wages has gained momentum recently, with public sector workers taking to the streets in a push for better pay and conditions.

ANZ economists Miles Workman and Liz Kendall said the labour market remained close to full employment and recent indicators suggested that more tightening may be limited.

"Just how much wage growth accelerates beyond the impact of higher minimum wages and government wage negotiations is a key uncertainty," they said. "On the other hand, a lift in inflation expectations, perhaps related to minimum wage increases and higher tradables inflation could lead to more sustained inflationary pressures than currently expected."

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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Increases in New Zealand's minimum wage and a move towards collective bargaining will accelerate the pace of pay rises over the next five years and spur inflation, according to ASB Bank economists.

Economist Mark Smith and chief economist Nick Tuffley said the planned increase in the minimum wage to NZ$20 (US$13.47) an hour by 2021 could add between 0.5 and 0.7 percentage points to annual wage inflation by the middle of 2022 as the 13% of workers on the bottom pay rung, or those earning a little more, shift up the pay scale. If proposed Fair Pay Agreements and easier settings for collective bargaining are included, the additional annual wage increase could be closer to 1% as lower-paid sectors benefit from greater job protection.

Newsroom.pro indicated that the situation would also probably drive up consumer prices but without a corresponding increase in productivity, which Tuffley and Smith estimate could boost inflation by between 0.3 and 0.7% per year, and potentially lead to higher interest rates.

Demand for higher wages has gained momentum recently, with public sector workers taking to the streets in a push for better pay and conditions.

ANZ economists Miles Workman and Liz Kendall said the labour market remained close to full employment and recent indicators suggested that more tightening may be limited.

"Just how much wage growth accelerates beyond the impact of higher minimum wages and government wage negotiations is a key uncertainty," they said. "On the other hand, a lift in inflation expectations, perhaps related to minimum wage increases and higher tradables inflation could lead to more sustained inflationary pressures than currently expected."

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

MORE ARTICLES THAT MAY INTEREST YOU

Number of payroll investigations jump significantly in New Zealand

Swiss expats hope that AIE will become bargaining chip for social security treaty

ELMO acquires Pivot Remesys Group for AUS$8.8m

 

 

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