Outlook for NZ wage growth still subdued

NZ wage inflation has remained stubbornly low. The private sector LCI (including overtime) rose by 0.5% in the March quarter, to be up 1.8% for the year. The broader QES measure of wage inflation did pick up to 3.2%. But even this measure has failed to break higher over the past year despite firm GDP growth. 

"In fact, any material lift is not seen in nominal wage growth for four years now. And with signs that momentum in the economy is slowing, it's likely that wage inflation will remain subdued for some time yet", says Westpac.

Over the past year the softness in wage inflation was less of a concern as households' real purchasing power was still growing at a solid pace. That was because while wage inflation was low, inflation in the prices of goods and services was even lower. Notably, last year's sharp falls in petrol prices had, until recently, put quite a bit of cash back into households' pockets. 

"But over the coming year households' purchasing power is going start looking a lot less healthy", added Westpac. 

Petrol prices have reversed their earlier declines, and the fall in the NZD will result in the prices of a range of imported goods rising over the coming months. Combined with lingering softness in wage growth and a likely pick-up in unemployment, this means that many households will find their budgets getting squeezed.